Saturday, November 3, 2012

week ending Nov 3

Fed's Balance Sheet Declines in Latest Week - The Fed's asset holdings in the week ended Oct. 31 edged down to $2.825 trillion, from $2.843 trillion a week earlier, it said in a weekly report released Thursday. The Fed's holdings of U.S. Treasury securities declined to $1.645 trillion on Wednesday from $1.647 trillion. The central bank's holdings of mortgage-backed securities fell to $852.04 billion from $868.07 billion a week ago. In September the Fed began buying $40 billion a month of additional mortgage-backed securities on an open-ended basis. Fed officials have said that they plan to continue buying bonds until the labor market improves significantly. Thursday's report showed total borrowing from the Fed's discount lending window was $1.26 billion Wednesday, down from $1.31 billion a week earlier. Borrowing by commercial banks rose to $37 million from $4 million a week earlier. U.S. government securities held in custody on behalf of foreign official accounts rose to $3.617 trillion, up from $ 3.601 trillion in the previous week. U.S. Treasurys held in custody on behalf of foreign official accounts increased to $2.921 trillion, up from $2.904 trillion in the previous week. Holdings of agency securities edged down to $696.25 billion from the prior week's $696.79 billion.

Why The Fed’s Balance Sheet Is Shrinking - The Federal Reserve launched a major bond-buying program this fall, fueling worries that the ballooning size of its portfolio of assets could stoke inflation. So why has the Fed’s balance sheet been shrinking over the last two weeks? New Fed purchases take time to settle, and old mortgage securities already in its portfolio are being retired at a faster pace with interest rates down.

Fed’s Kocherlakota: Fed May Not Be Providing Enough Stimulus - Continuing problems in the U.S. economy suggest that the Federal Reserve may not be providing enough stimulus, a central bank official said Tuesday. “The U.S. economy is recovering from the largest adverse shock in 80 years–and a historically unprecedented shock should lead to a historically unprecedented monetary-policy response,” Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said in remarks prepared for delivery before a gathering at the University of Minnesota in Duluth. Observing that most Fed policy makers expect inflation to be at or under the Fed’s 2% target for some time to come, Mr. Kocherlakota said he believes the central bank has more room to act. “Given how high unemployment is expected to remain over the next few years, these inflation forecasts suggest that monetary policy is, if anything, too tight, not too easy,” the policy maker said. Mr. Kocherlakota is not currently a voting member of the Federal Open Market Committee. The policy-setting body met last week in a gathering that left the central bank’s existing stimulus plan in place. The FOMC decided to continue forward with a mortgage-bond-buying program launched in September, and it also kept in place its conditional pledge to keep rates steady until the middle of 2015. Mr. Kocherlakota has drawn a lot of attention in recent weeks for what many saw as a radical shift in his outlook. The official spoke earlier in the year about the possibility of tightening monetary policy sooner than others on the FOMC thought appropriate. In a recent speech, the central banker changed gears and suggested the Fed keep policy very stimulative until the unemployment rate fell to 5.5%, as long as inflation remained under 2.25%. Mr. Kocherlakota has said it is likely to be years before that happens.

Fed’s Williams: New Stimulus Is Having Its ‘Desired Effects’ - A key central bank official said Friday the latest round of Federal Reserve stimulus is “having the desired effects” on the economy. As a result, Federal Reserve Bank of San Francisco President John Williams is expecting economic activity to pick up over the next few years. He said in the text of a speech to be delivered before a local group in Salt Lake City that as he sees it, “we have substantial scope to use monetary policy to stimulate the economy without creating too much upward pressure on prices.” “The economy will gain momentum over the next few years,” Mr. Williams said. He reckons that while the U.S. economy will likely grow by 1.75% this year, it will likely expand by 2.5% next year and by 3.5% in 2014.

Fed’s Rosengren: Fed Should Buy Bonds Until Unemployment Hits 7.25% - In a speech that expressed strong support for continued monetary policy stimulus, a Federal Reserve official explained how far he was willing for the central bank to go with its current bond-buying program markets refer to as QE3. “As long as inflation and inflation expectations are expected to remain well-behaved in the medium term, we should continue to forcefully pursue asset purchases at least until the national unemployment rate falls below 7.25% and then assess the situation,” Federal Reserve Bank of Boston President Eric Rosengren said. Noting that it would take above-trend growth rates of 3% for a year to achieve that level of unemployment from the September’s 7.8% jobless rate, Mr. Rosengren’s comments suggest the Fed could be expanding its balance sheet with new bond purchases for some time to come.

Fed’s Lockhart Says Jobs Market Health Can’t Be Gauged by One Number - A key Federal Reserve official defined in remarks Thursday what would signal to him the central bank was making progress in improving the labor market. In his speech, Federal Reserve Bank of Atlanta President Dennis Lockhart also said he’s not expecting to see strong growth for the economy, although there are increasing signs of positive activity. “The economy is stuck in a slow-growth mode,” the official said in the text of a speech prepared for delivery before a local group in Chattanooga, Tenn. “The most plausible forecast is continued modest growth with gradual employment gains,” Mr. Lockhart said.

Job Market Has Much Farther to Go Before Fed Pulls Back - As good as recent jobs data have been, the numbers aren’t good enough to lower the unemployment rate as quickly as anyone would like to see. On Friday, the government reported that the nation added 171,000 jobs last month, as the unemployment rate ticked up a touch to 7.9%. Economists by and large greeted the numbers warmly, acknowledging that while the improvement is modest, it confirms a trend of rising employment. After the woes of recent years, you take what you can get. And yet the job market remains far from vigorous health. A calculator on the Federal Reserve Bank of Atlanta‘s website shows the magnitude of the task at hand. It allows users to pick a given unemployment rate and calculate how long it will take to reach that level. The math is challenging for policy makers and job seekers alike.

Has Fed Behavior Changed? - Atlanta Fed's macroblog -To the titular question, Steve Williamson thinks the answer is "yes":… the behavior of the FOMC has changed. Either it cares about some things it did not care about before (and in a particular way), or it cares about the same things in different ways—in particular it is less concerned about its price stability mandate.Part of the Williamson case relies on an earlier post, where Williamson illustrates deviations of the actual path of the federal funds rate paths from his own estimated version of the Taylor rule:New Keynesians like to think about monetary policy in terms of a Taylor rule, which specifies a target for the federal funds rate as a function of the "output gap" and the deviation of the actual inflation rate from its target value. According to standard Taylor rules, the fed funds target should go down when the output gap rises and up when the inflation rate rises. You can even fit Taylor rules to the data. I fit one to quarterly data for 1987-2007, and obtained the following: R = 2.02 - 1.48(U-U*) + 1.17P,where R is the fed funds rate, U is the unemployment rate, U* is the CBO natural rate of unemployment (so U-U* is my measure of the output gap) and P is the year-over-year percentage increase in the PCE deflator. You can see how it fits the historical data in the next chart. An obvious point: It is clear from Williamson's chart above that the predictive power of his version of the Taylor rule is far from perfect. In fact, through 2007 the standard deviation of the estimated rule's prediction error is 1.3 percentage points. From that perspective, the difference between a Williamson-Taylor rule funds-rate prediction of 1.1 percent and the actual current value of 0.14 percent doesn't seem so dramatic. I don't really see an obvious deviation from previous behavior.

Bill Gross Says Quantitative Easing Not Spurring Investments - Bill Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., said there is no evidence that investment is being spurred by the Federal Reserve’s quantitative easing program. “All of the money being created and freed up is elevating asset prices, but those prices are not causing corporations to invest in future production,” Gross wrote in a monthly investment outlook posted on the Newport Beach, California-based company’s website today. Lower interest rates are being used “to consume as opposed to invest,” he said. Investors should recognize that asset and currency prices ultimately rest on the ability of the economy to grow, Gross wrote. If real growth is stunted in the U.S. and globally, then investors should also acknowledge “bite-sized” future returns and the growing risks of “misguided” monetary and fiscal policy that may disrupt financial markets at some point. The so- called fiscal cliff may be the first of a series of disruptions, though Gross expects some type of compromise on the possible tax increases and budget cuts.

Target Household Incomes -- Scott Sumner recently came up with a new proposal for the Fed: I’m going to propose a compromise between the current policy of $40 billion bond purchases each month, and a radical policy of immediately targeting the forecast. Have the Fed start QE3 at $40 billion per month, and then increase their purchases at a rate of 20% each month, until they have achieved their policy goal (of equating predicted nominal growth with desired nominal growth.) This proposal would most likely pack a punch and raise expected nominal income growth. It would also once and for all settle the debate on the efficacy of monetary policy at the zero bound. There is no doubt in my mind what the outcome would be. A big problem, though, with implementing so much monetary firepower is the absence of a well defined policy goal. Currently, the Fed has a vague policy goal of improved labor market conditions in a context of price stability. No one really knows what that means. Scott would like to change that by having the Fed target the NGDP forecast using NGDP futures contracts. Here is a suggestion for a less ambitious way for the Fed to target the forecast. First, the Fed would set a target for average nominal household income growth over the next year. Second, the Fed would contract with multiple polling organizations to do a weekly poll where they ask households how much they expect their dollar incomes to grow over the next year. Third, the Fed would take some average of these polls and compare it to the Fed's targeted growth rate for nominal household income. Fourth, the FOMC wold then conduct open market operations to bring household's expected dollar income growth in line with the Fed's target growth rate.

Who Loses When Fed Keeps Interest Rates Low? - I’m amazed that Federal Reserve Chairman Ben Bernanke has emphasized the beneficiaries of low interest rates and has never bothered to mention the losers. Nor, to my knowledge, have key administration officials or members of Congress. Yet interest rates close to zero are causing considerable distortions and, for many, outright harm. Think about savers who are receiving trivial returns on their bank and money-market accounts. Those returns would be negative if fund managers weren’t waiving fees. Furthermore, free checking accounts are disappearing. Banks and thrifts, facing low interest earnings, have increased the size of the required balance on checking accounts that pay no interest to $723, on average, up 23 percent in the last year. The average fee on non-interest checking accounts jumped 25 percent to $5.48 per month, also a record. The percentage of non-interest checking accounts that are free of charges dropped to 39 percent from 76 percent in 2009. Many savers also are deserting money-market funds for the safety of accounts covered by the Federal Deposit Insurance Corp. This is shown by the collapse in M2 velocity of money. The ratio of M2 to gross domestic product indicates that money is just sitting in accounts, despite returns that are almost zero in nominal terms and distinctly negative returns in real terms.

Fed Watch: On Coordinated Monetary and Fiscal Policy - I don't view a temporary increase in inflation as necessarily undermining neither the Fed's long-term inflation targets nor a nominal GDP target. And I think that the failure to make such a promise could very well disrupt a reversion of the economy to pre-recession trends. There needs to be some coordination between fiscal and monetary policy. Putting aside what I believe will be an aberration in the third quarter, authorities are already engaged in some degree of fiscal austerity: and have effectively promised to do more. Should it even be reached, a compromise to the fiscal cliff will likely still be further austerity. I think that we should be wary about underestimating the impact of such austerity, especially as it is increasingly evident that multipliers are larger than expected at the zero bound. Fiscal austerity would likely be a key factor in maintaining the relatively tepid pace of the recovery into 2013. Moreover, fiscal austerity wastes the opportunity provided by a low interest rate environment. The Federal Reserve has already promised to buy a steady stream of assets from the financial markets. All Congress needs to do is sell debt into that stream. No explicit coordination necessary. Another issue that I can't run away from is the potentially negative impacts of a sustained zero interest rate environment. It would be a mistake to believe that monetary policy does not have distributional impacts. Low interest rates obviously hurt savers: Moreover, we should be concerned about distortions to the capital allocation process. Encouraging excessive risk taking now will come back to haunt us later. That said, it is necessary to balance such negative impacts against the positive impacts. Nor is it clear that the Federal Reserve is driving this train; the absence of an aggressive monetary policy might very well weaken the economy such that interest rates fall further. In any event, I am challenged to see how a different monetary policy would be effective; tightening policy at this juncture would likely be disastrous for the economy. Finally, another issue to which I have already alluded is a belief that the US economy is on a suboptimal path:

Should We Use Above-Normal Inflation To Address Economic Ills? - The Economist asks: Above-normal inflation has been proposed as a solution (or salve) to a number of the rich world's economic problems. In conjunction with financial repression, it could help erode sovereign debt loads. In the euro area, differential inflation could facilitate rebalancing. It could help lower real interest rates in economies up against the zero lower bound, and it could help facilitate real wage adjustments in economies plagued by nominal wage stickiness. Of course, there are risks to higher inflation, including efficiency costs and the possibility that "de-anchored" inflation expectations could be difficult and costly to contain. Will the rich world use above-normal inflation as a way to address economic ills? Should it? Here are the responses, including mine:

Personal Consumption Expenditures: Price Index Update - The October Personal Income and Outlays report for September was published today by the Bureau of Economic Analysis. The first chart shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. I've also included an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation.The latest Headline PCE price index year-over-year (YoY) rate of 1.71% is an increase from last month's 1.48%. The Core PCE index of 1.67% is an increase from the previous month's 1.58%. I've calculated the index data to two decimal points to highlight the change more accurately. PCE is a key measure of inflation for the Federal Reserve, and the price increase in oil and gasoline, although now well off their interim highs, puts consumer behavior in the spotlight. In the past, a core PCE range of 1.75% to 2% is generally mentioned as the target for the Federal Reserve's price-stability mandate. However, the Fed has now explicitly identified 2% as the long-term target:

PCE Inflation Update, September 2012 - Dallas Fed - This update, prepared by Dallas Fed Senior Economist Jim Dolmas, provides an in-depth analysis of the latest personal consumption expenditures (PCE) inflation data. Updates will be posted monthly, following the release of the official PCE data by the Bureau of Economic Analysis. NOTE: Terms in bold are defined in the Inflation Update Glossary. The Dallas Fed’s trimmed mean PCE inflation rate for September was an annualized 1.9 percent, up from a revised 1.7 percent in August. With the revision to August (originally reported as an annualized 2.0 percent rate), and the latest reading, the trimmed mean has now recorded six straight months of rates below annualized 2.0 percent, though just barely in September. The six-month trimmed mean rate ticked down to an annualized 1.6 percent from 1.7 percent in August. The 12-month trimmed mean rate held steady at 1.8 percent for a third month in a row. As we’ve noted before, the current 12-month trimmed mean rate is a good forecast of average headline PCE inflation over the next 12 months—so we expect the headline rate to average 1.8 percent between now and September 2013. For now, though, the headline PCE inflation rate continues to be buffeted by movements in energy prices, especially the price of gasoline. For a second month in a row, the headline price index increased at a roughly 5 percent annualized rate (5.0 percent in August and 4.7 percent in September), with increases in the price of gasoline being the main contributor.

Financial Shocks, Risk Premium, and Monetary Policy -- In the ongoing debate over the causes of the slump, one group of observers sees disruptions to the financial system as important factor. Tyler Cowen, for example, has argued that there has been a rise in the risk premium caused by a lingering shock to trust: In short, there is a prevailing sense that we are simply not as safe, financially speaking, as we used to be. The slow cure for this problem is to allow asset prices, along with perceived wealth and trust, to return to or exceed the previous levels over time... But the process would be cumbersome, partly because trust is more easily destroyed than restored.Others, like David Andolfatto and Stephen Williamson have put forth related arguments, claiming that the crisis has made the "limited commitment" problem more pronounced and reduced the financial systems ability to produced enough safe assets. In these stories, there have been real shocks to financial intermediation. And to the extent these shocks are long-lasting or permanent, there is nothing monetary policy can do since the real side of the economy has shrunk. It is not surprising, then, that Tyler, David, Stephen, and others who hold this view are often skeptical of Fed policies to stimulate the economy. While I can accept that there has been some real shocks to financial intermediation, I do not see these disruptions as necessarily being permanent or unamenable to monetary policy for two reasons. First, a case can be made that the risk premium in the short run can be subject to swings not tied to long-run economic fundamentals. The second reason I think these real financial shocks are not permanent and are amenable to monetary policy is that they ultimately matter because they create a shortage of safe assets.

Advance Q3 Estimate: Defense Spending Surge Drives Slightly Higher GDP Growth - Is this good news or not? The advance estimate of Q3 Real GDP, released on October 26 indicates a 2.0% rise in real GDP: Still pretty tepid but higher than the 1.3% growth in the second quarter. But, you may want to keep the celebration in check – the major part of the increase was driven by a large 9.6% increase in Federal Government spending and a big part of that was defense spending: National defense spending rose 13.0%. Overall, the increased Federal spending accounted for .7% of the 2% growth in real GDP! Note that government spending rose 3.7% overall, the first increase in 8 quarters. The last time government spending fell for 8 consecutive quarters was the unwinding of the Korean War, from 1953:Q3 to 1955:Q2. There is a legitimate question about whether increased growth fueled by unsustainable government spending that is financed by borrowing has welfare implications that we should be happy about. This is particularly so since other aspects of the economic picture were quite weak. Gross private domestic investment was weak, growing at just 0.5%, with non-residential structures declining at 4.4% and equipment and software investment flat at 0.0%. This is in spite of much publicity about a reviving household sector.

Yet another discouraging GDP report - On Friday the BEA reported that U.S. real GDP grew at a 2.0% annual rate during the third quarter. That compares with an average growth rate of 3.4% over 1947:Q2-2007:Q3, and an average growth rate of 4.4% if you leave out those quarters in which the economy was in recession. But the latest number is about on par with what we've come to expect during the most recent expansion; the average annual GDP growth rate since 2009:Q3 has been 2.1%. Nor was there much encouragement to be found in the details underlying the GDP aggregate. Residential investment has finally begun to make a positive contribution, adding 0.3% by itself to that 2.0% total growth, while autos contributed another 0.2%. Strong growth in housing and autos is where we would hope to look for any post-recession bounce back. The good news is that housing should continue to make positive contributions in the year ahead. The biggest boost to third quarter growth came from federal military spending, which all by itself added 0.64 percentage points to the 2.0% total growth. Possibly this represented spending in anticipation of sequestration to come, in which case it could be more than matched by a corresponding negative entry this quarter or next. Nonresidential fixed investment subtracted 0.1%-- not a huge drag, but a very worrisome development.The ongoing sluggishness of the growth has been causing the Econbrowser Recession Indicator Index to drift up, and it now stands at 7.9%. For purposes of calculating this number, we allow one quarter for data revision and trend recognition, so the latest value, although it uses today's released GDP numbers, is actually an assessment of where the economy was as of the end of the second quarter of 2012. The index would have to rise above 67% before our algorithm would declare that the U.S. had entered a new recession.

Q3 2012 GDP Details: Office and Mall Investment very low, Single Family investment increases - The BEA released the underlying details for the Q3 Advance GDP report. The first graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased slightly, but from a very low level. Investment in offices is down about 59% from the peak (as a percent of GDP). With the high office vacancy rate, investment will probably not increase significantly (as a percent of GDP) for several years. Click on graph for larger image. Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 61% from the peak (note that investment includes remodels, so this will not fall to zero). Lodging investment peaked at 0.32% of GDP in Q2 2008 and is down about 74%. The second graph is for Residential investment (RI) components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories (dormitories, manufactured homes). Usually the most important components are investment in single family structures followed by home improvement. Investment in single family structures is finally increasing after mostly moving sideways for almost three years (the increase in 2009-2010 was related to the housing tax credit).

The Employment and GDP Relationship - The latest GDP release gives me the opportunity to re-evaluate whether job creation is less than what would be expected, given the growth in real GDP. At first glance, it seems obvious that growth in employment is less than expected. A simple OLS regression of log private employment on log real GDP over the 1987Q1-2012Q3, which might be implied by a particular form of Okun’s Law. Notice that using this simple (log) linear specification, private employment appears some 4% less that predicted (and statistically significantly different from predicted). However, while the adjusted R-squared is quite high for this regression (about 0.91), the DW statistic is around 0.06, suggesting spurious regression. This casts in doubt the proposition of a substantial underprediction. In order to deal with this problem, one can either estimate in first differences, or incorporate the long run relationship using a specification allowing for a cointegrating relationship. Following the methodology outlined in this post from April, I estimate a first differences and error correction specification up through the beginning of the recession (1987Q1-2007Q4), with dynamic forecasts starting from 2008Q1. The results are shown in Figure 2.

The Age of Deleveraging - The world’s major economies are struggling and their private-sector is deleveraging (paying off debt). If history is any guide, this deflationary process is likely to continue for several years. You will recall that heading into the global financial crisis, corporations and households in the developed world were leveraged to the hilt. During the pre-crisis era, debt was considered a birth right and for decades, the private-sector leveraged its balance-sheet. Unfortunately, when the US housing market peaked and Lehman went bust, asset values plummeted but the liabilities remain unchanged. Thus, for the first time in their lives, people in the developed world experienced the wrath of excessive leverage. Today, the private-sector in the West is struggling and for the vast majority of households, their liabilities now exceed their assets. Furthermore, incomes have also declined (or vanished), thereby making the debt servicing even more difficult. Consequently, in order to avoid bankruptcy, the private-sector in the developed world is now trying its best to reduce its debt overhang. Instead of getting excited by near-zero interest rates and taking on even more debt, it is now doing the unthinkable and paying off its liabilities. Figure 1 shows that despite the Federal Reserve’s carrot of almost free credit, the private-sector in the US is deleveraging. As you can see, since the bursting of the housing bubble, America’s companies and households have been accumulating large surpluses. Make no mistake, it is this deleveraging which is responsible for the sluggish economic activity in much of the developed world. Furthermore, this urge to repay debt is the real reason why monetary policy in the West has become ineffective.

Young CEOs' Sentiment Holds Steady, but Still Cautious -A survey of young U.S. chief executives shows they continued to be cautious about the economic outlook, but not much more so than they were three months ago. The YPO Global Pulse Confidence Index, conducted during the first two weeks of October, fell less than 1 point to 59.1 compared to results from July. Any reading over 50 is considered to reflect optimism about the outlook. The July survey showed a much sharper 5.1 point decline, compared to April. The latest results are based on answers from 811 U.S. executives. Attitudes about the economy varied widely, depending on the industry. Only 21% of manufacturing CEOs said conditions had improved over the last six months — down sharply from the 38% who responded with an upbeat view three months ago. The share of manufacturers who said they expected conditions to worsen jumped to 27% from 17% in July.

The Big Four Economic Indicators: Real Personal Income Less Transfer Payments - Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method. There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. They are:

Industrial Production

Real Income (excluding transfer payments)

Employment

Real Retail Sales

The weight of these four in the decision process is sufficient rationale for the St. Louis FRED repository to feature a chart four-pack of these indicators along with the statement that "the charts plot four main economic indicators tracked by the NBER dating committee."The latest updates to the Big Four was today's release of the September Real Personal Income Less Transfer Payments (the red line in the chart below), which fell 0.1 percent over the previous month following a 0.2 percent decline the month before. The mainstream press follows nominal personal income, which for September met analysts' expectations of a 0.4 percent rise. But adjusted for inflation and excluding social benefits (Social Security, Welfare, Veteran's benefits, etc.), the recent trend in personal income is a bit troubling.

The Big Four Economic Indicators: Nonfarm Employment Update - Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method. There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. First, here are the four as identified in the Federal Reserve Economic Data repository. See the data specifics in the linked PDF file with details on the calculation of two of the indicators. The FRED charts are excellent. They show us the behavior of the big four indicators currently (the green line) as compared to their best, worst and average behavior across all the recessions in history for the four indicators (which have start dates). Their snapshots extend from 12 months before the June 2009 recession trough to the present. The latest updates to the Big Four was today's release of the October Nonfarm Employment data (the blue line in the chart below), which rose 0.1% month over month. This indicator has grown for 25 consecutive months, but the rate of growth has been frustratingly slow, averaging 0.12% to two decimal places. The preliminary number for October is a MoM change of 0.13%, right at the average pace of the past two years.

Spooky Halloween surprise from Goldman - The Goldman Sachs Analyst Index (GSAI) hit a new post-recession low this month. The index is a composite of corporate outlook by industry from Goldman's company research. In the past, the index generally fell in line with other economic activity indices such as ISM Manufacturing - but not recently. While the ISM index is showing a slight expansion (though we don't yet have the October ISM number), GSAI is pointing to the sharpest contraction across US industries since 2009. Sales, shipments, new orders - all came in weak. This indicates that the positive economic numbers in September (see discussion) may have been an aberration. GS: - The Goldman Sachs Analyst Index (GSAI) tumbled to 32.9 in October from 44.1 in September. Underlying components also fell across the board, suggesting depressed business activity from the bottom-up. In addition to the headline index, most of the underlying components of the GSAI also fell sharply. The sales index gave back its gain in September, falling 12 points to 36.4 in October from 48.4, registering the fifth consecutive month below the 50 mark. Similarly, the new orders index fell 15.4 points to 26.3 from 41.7, contributing 4.6 points alone to the headline drop. The inventories index saw the lone gain, rising 1.6 points to 43.3. Consequently, the orders-inventories gap fell back into negative territory at -17.0 versus flat in September. The sharp reversal in the sales, new orders, and orders-inventories gap measures suggest that the broad improvement in September was likely transient, and that activity and demand will likely remain depressed despite tight inventories.

Counterparties: The Sandy economy - New York shut down the largest mass transit system in North America last night, ordered mandatory evacuations in the lowest parts of the city, and is preparing to pre-emptively shut down power in lower Manhattan. Millions more are likely to lose power across the region. Banks implemented contingency plans to keep critical businesses running, but stock and options markets were closed today, and will be closed again tomorrow. Bond markets were open for half a day today and will likely be closed tomorrow. The storm may cause $18 billion in damage. The Washington Post’s Sarah Kliff has a great piece explaining why it is getting harder and harder for insurance companies to estimate how much they will have to pay out in losses. Productivity loss is murkier still. Industries like travel and cargo shipping are obviously slowed (More than 12,000 flights have been canceled across the country.) But experts note that a backlog isn’t the same as completely lost business: “The cost of the cargo disruptions probably won’t be large…While cargo gets backed up it eventually gets delivered”. The economy at large appears at least as resilient. The NYT’s Binyamin Appelbaum takes a look at a 2010 study from the Inter-American Development Bank (full report here). His summary: For all the devastation wreaked by natural disasters, economists say that the long-term impact on a nation’s economy is generally negligible — particularly in countries with strong institutions and deep pockets.

Economic Effects of Hurricane Sandy - As the eastern U.S. tries to dig out from under the devastation, I thought it might be useful to comment on the economic consequences that a storm like this could have. One school of thought holds that our economic problems are entirely a deficiency of aggregate demand. According to this view, if we could just get consumers (or the government) to spend more, our problems would be solved. The classic extreme example of a policy that might boost GDP according to this perspective would be if the government were to pay workers to dig a hole and fill it back in. That extreme case leads one naturally to ask how it could possibly be better to pay people to do dangerous and hard work digging a hole compared to just sending them checks to stay comfortably at home. The answer turns out to be that, if we pay for hole-digging, we not only have provided paychecks to workers, we also have produced a newly-filled-in hole, which the convention of our national income accounts treats as newly-created infrastructure. The economic value of that is taken to be whatever the government paid for it, and thereby adds directly to GDP. In the present situation, there is a tremendous amount of real work that needs to be done-- subways need to be drained, debris needs to be removed, fallen trees need to be cleared. Lots of hard work needed and jobs created in getting that done. More importantly, when the work is finished, we'll have not a filled-in hole, but instead something really valuable-- subways we can ride to work, roads that we can drive on. Except, we had all those same good things two weeks ago. In the mean time, trying to get by without those means people who can't get to work, commissions on financial transactions that won't be earned, sales that didn't get made.

Hurricane Sandy cost may hit $50 billion - Superstorm Sandy will end up causing about $20 billion in property damages and $10 billion to $30 billion more in lost business, according to IHS Global Insight, a forecasting firm. In the long run, the devastation the storm inflicted on New York City and other parts of the Northeast will barely nick the U.S. economy. That's the view of economists who say higher gas prices and a slightly slower economy in coming weeks will likely be matched by reconstruction and repairs that will contribute to growth over time. The short-term blow to the economy, though, could subtract about 0.6 percentage point from U.S. economic growth in the October-December quarter, IHS says. Retailers, airlines and home construction firms will likely lose some business. The storm cut power to about 7 million homes, shut down 70 percent of East Coast oil refineries and inflicted worse-than-expected damage in the New York metro area. That area produces about 10 percent of U.S. economic output. New York City was all but closed off by car, train and air. The superstorm overflowed the city's waterfront, flooded the financial district and subway tunnels and cut power to hundreds of thousands. Power is expected to be fully restored in Manhattan and Brooklyn within four days.

Estimate of Economic Losses Now Up to $50 Billion - Economic damages inflicted by Hurricane Sandy could reach $50 billion, according to new estimates that are more than double a previous forecast. Some economists warned on Thursday that the storm could shave a half percentage point off the nation’s economic growth in the current quarter. Losses from the storm could total $30 billion to $50 billion, according to Eqecat, which tracks hurricanes and analyzes the damage they cause. On Monday, before the storm hit the East Coast, the firm estimated $10 billion to $20 billion in total economic damages. The flooding of New York’s subways and roadway tunnels and the extensive loss of business as a result of utility failures across the region were behind the sharp increase in the estimate, the firm said. “The geographic scope of the storm was unprecedented, and the impacts on individuals and on commerce are far larger,” . “Lost power is going to contribute to higher insurance losses.” Eqecat predicted that New York would bear 34 percent of the total economic losses, with New Jersey suffering 30 percent, Pennsylvania 20 percent and other states 16 percent. That includes all estimated losses, whether covered by insurance or not. The estimates and the share that will be covered by insurers are far from certain at this point, as government officials, property owners and insurance adjusters struggle to assess the destruction.

Sandy's cost to economy: Up to $50 billion-- The estimated loss to the nation's economy from Superstorm Sandy has climbed to as much as $50 billion, making it one of the nation's most costly disasters. Eqecat, which does loss estimates from catastrophes for the insurance industry, puts the total losses at between $30 billion and $50 billion. Its initial estimated loss earlier in the week was only $10 billion to $20 billion. Eqecat said the higher estimate is due primarily to the large electric and utility losses, coupled with the transit and road closures that shut many businesses longer than expected. It also said further information about damage is raising the estimate. It now believes the insured portion of the loss could reach in the $10 billion to $20 billion range, up from its earlier estimate of a $5 billion to $10 billion in insured losses. Related: 19 bags of rotting food, and a business at risk Moody's Analytics, a economic research firm, puts storm losses at $49.9 billion. About $30 billion of the loss comes from the physical storm damage, split fairly evenly between households, businesses, and public infrastructure such as rail lines, roads and water and sewage systems. The rest of the Moody's estimate comes from lost business activity. Mark Zandi, chief economist for Moody's Analytics, said if he had to guess, he would estimate that the loss estimate is more likely to rise as the full extent of damage and the actual cost of repairs becomes better known.

Rosenberg Predicts Surprise Q4 Negative GDP due to Sandy - I am concerned that as is the case so often, complacency has set in. The consensus view of a mere decimal place impact on Q4 real GDP growth from the storm seems like a pipe dream to me and has not been carefully thought out, in my opinion. Of course the devastation to the capital stock across so many dimensions affects net worth and not GDP, which measures the flow of spending in the economy, but it is indeed the spending portion that has also been seriously impaired, and a good part of it is not coming back and the inevitable pickup in spending of generators. sump pumps, cement and plywood is not going to be enough to provide an offset, at least over the next few months. Logic should prevail more than history here, because there is no appropriate historical comparison, and yes, I include Katrina in that assessment. Yes, there will at some point be a revival in building activity and repair damage that will support spending and real GDP growth to be sure. But something tells me that this process may be delayed somewhat as the claims get tallied up and the fallout from the disaster continues. That should help out first quarter activity but from a lower level and, of course, assuming that the economy doesn't fall off any fiscal cliff.

Economists fear worst for superstorm Sandy’s damage to fragile US recovery - As the flood waters recede and the states hit by Sandy start the grim task of mopping up, many questions remain, among them: how big an impact will the storm and its fallout have on the US economy? The short answer is: tens of billions of dollars, in damage, lost output and disruption to entire industries. And despite some optimistic forecasts made a day after Sandy moved inland, there are good reasons to think the final tally may be worse than expected. The devastation caused by Sandy comes at a critical time for the US economy as a whole, which seems to be on a slow march out of the doldrums, even if its pace is too slow for the millions out of work, and for Barack Obama's political fortunes. The real effect won't be felt for several weeks, and it may be months and even years before the final cost of Sandy is calculated.

Sandy will have a wider effect on growth - The storm surge may have receded from New York, but hurricane Sandy’s impact on the economy is just starting to hit. The high winds and water that caused dozens of deaths, knocked out power lines, shut down the stock market for two days and paralysed much of the US east coast will play havoc with economic data and may damp growth. Its effects will be one more complication for investors already dealing with enough confusing signals until the end of the year. Loss estimates from Sandy have escalated from $10bn to as much as $50bn and could keep climbing. In the New York region, there is a palpable sense of economic slowdown: hours wasted pumping out the basement, queueing for petrol, skipping business meetings and finding friends with electricity. Calls to contacts in lower Manhattan and New Jersey this week did not get voicemail but incessant beeping. Emails sometimes yielded a response and sometimes messages like this: “I am OOO [out of the office] all week trying to get my wife and family set up to survive with no power next week.” This is economic activity lost. The storm will also loom over retail sales data to be issued over the next few months. Supermarkets were thronged last weekend as shoppers emptied shelves of bottled water and batteries. Now, after the storm, many storefronts are dark. Volatility could also affect industrial production figures after the storm as power outages persist for millions of utility customers. The east coast’s second biggest oil refinery, a New Jersey landmark known as Bayway, was shut all week.

Hurricane Hits Just-In-Time Economy - I've been wondering for a long time whether the just-in-time nature of modern economies created large-scale rapid failure modes in which a shock that pushed the system sufficiently far out of its envelope of resilience would trigger a catastrophic breakdown. I've called this kind of thing a "death-star vulnerability" in which if something hit civilization in just the right way in the most vulnerable place, the whole thing might blow. I first became interested in this in the context of cyber-attacks, but I've never seen any way to get any kind of intellectually defensible handle on the problem of understanding the existence, nature, and tractability of that kind of vulnerability. At any rate, and at some risk of sounding ghoulishly detached, Hurricane Sandy is creating a pretty interesting natural experiment that is illuminating some of the issues. The hurricane hit land on Monday evening, and by Thursday the entire region is close to out of gas: The lines of cars waiting for gas at a Sunoco here ran in three directions: a mile-long line up the Garden State Parkway, a half-mile line along Vauxhall Road, and another, including a fleet of mail trucks that needed to refuel before resuming their rounds, snaking through a back entrance. The scene was being replayed across the state as drivers waited in lines that ran hundreds of vehicles deep, requiring state troopers and local police to protect against exploding tempers. It sounds like this is a non-trivial threat to social order if it goes on a lot longer. And it illustrates that despite a fairly focussed and competent-seeming response by authorities at all levels, the interlocking nature of infrastructures, and the lack of much inventory in the system, mean that it's quite hard to recover if enough infrastructure is damaged at the same time. And, as in the case of the 2000 UK petrol strike, people get really ugly, really fast once their access to food and fuel is threatened.Repairs to all other infrastructures (power, subways, phones, etc) require people running around in trucks fixing things and those trucks running short of fuel will have a very deleterious effect on the speed of recovery of the region's economy.

The costs of Hurricane Sandy: Life satisfaction as an alternative to GDP - Hurricane Sandy destroyed an massive amount of US wealth, but the impact on human wellbeing surely goes far beyond any dollar figure. This column argues that the ‘subjective wellbeing’ literature can inform policy choices in the area of emergency response. Since the ‘happiness’ cost of short-term weather changes far exceeds that of long-term changes, prevention policies are likely to yield a higher payoff in terms of life satisfaction than rebuilding policies with equivalent financial payoffs.

Comparing Recessions and Recoveries - The Labor Department delivered some decent news today, reporting that the nation’s employers added 171,000 jobs in October, plus 84,000 more jobs in August and September than initially estimated. The unemployment ticked up a bit to 7.9 percent from 7.8 percent, but that’s because more people decided to join the labor force and so were newly counted as unemployed. Job gains were widespread across the private sector, led by professional and business services, health care and retail. But employment still has a long way to go before returning to its prerecession level. The chart above shows economywide job changes in this last recession and recovery compared with other recent ones; the black line represents the current cycle. Since the downturn began in December 2007, the economy has had a net decline of about 3 percent in its nonfarm payroll jobs. And that does not even account for the fact that the working-age population has continued to grow, meaning that if the economy were healthy we should have more jobs today than we had before the recession. Getting the economy to 5 percent unemployment within two years — a return to the rate that prevailed when the recession began — would require job growth of closer to 280,000 per month. There are now 12.3 million workers looking for work who cannot find it. The tally of those who are “underemployed” — that is, adding in those workers who are part time but want to be employed full time, and workers who want to work but are not looking — is an even larger 23 million.

Who Gets Credit for the Economy’s Recovery? - THE housing bust finally seems to be over. Health care costs have slowed. The unemployment rate has fallen below 8 percent, much sooner than forecasters were predicting a few months ago. Consumer confidence has reached a post-recession high. There is still no guarantee that the economy is on a stable path to recovery, given its structural problems and the false starts of the last few years. But the odds that the recovery has finally begun have never been higher. Which is one more reason the presidential campaign, for all the groaning it has inspired from left, right and center, matters so much. The winner is likely to be able to claim the mantle of the president who brought the country out of a long economic slump, as Bill Clinton and Ronald Reagan were previously able to do. Both sides know as much, too. President Obama and his aides quietly chafe at the idea that Mitt Romney would be able to take credit for a recovery. Yet the prospect that the president who takes office in January will have the economic winds at his back — that he can claim his party is the solution and the opposition was the problem — is one of three main factors heightening the importance of the 2012 election.

Federal Reserve Policy vs. Fiscal Cliffs -ANYWHERE investors turned last week, they seemed to be approaching a cliff. But the Federal Reserve provided a margin of safety, and said it stood ready to do so for many months to come. The stock market, which had climbed so steadily for so long, has been stumbling. “Cliffs are in fashion this fall,” Ed Yardeni, an independent economist, wrote on Thursday. There are fiscal cliffs, earnings cliffs, revenue cliffs and political cliffs — notably, the stark uncertainty of a presidential election lurching to a razor-close finish. Mr. Yardeni said the market “is already stumbling off an ‘earnings cliff,’ ” and investors worry that political gridlock could render the nation unable to avert a fiscal precipice, too. That dreaded fiscal cliff came into unexpected view on Monday night, in a presidential debate that was putatively focused on foreign policy. President Obama told Mitt Romney, his Republican challenger, that an automatic cut in military spending simply “will not happen” on Jan. 1. But it wasn’t clear how Mr. Obama would manage to avoid the fiscal cliff — a crushing combination of tax increases and budget cuts — if he cannot reach agreement with a lame-duck Congress on how to avoid it.

Fiscal cliff uncertainty remains high; likely a drag on growth in the US - DB ran some analysis on the public's shifting concerns using Google Trends (see discussion). What they found is that as the Eurozone fears recede (for now), the uncertainty about the US fiscal cliff (see discussion) remains. DB: - This rise in concern about the fiscal cliff in the U.S. has coincided with a decline in concern about euro risk ..., due in large part to the ECB’s bond buying program. ... The frequency of news articles about Europe has plunged since early October as that of articles about the cliff has remained elevated. ... a more conventional indicator of euro risk – the spread between the average yield on Spanish and Italian 10-year bonds and 10-year German bonds – has declined substantially since the announcement of the ECB’s bond buying program, consistent with the decline in the frequency of the term “Europe” in our U.S. news article search.The question however is whether anyone should really care about uncertainty. Is there evidence that uncertainty such as the one related to the fiscal cliff will have a negative impact on the economy - a hotly debated topic particularly in an election year. DB argues that the effect is significant. They looked at the relationship between the BBD Uncertainty Index (news-based) and economic indicators - hiring and manufacturing orders - as well as the impact on equity prices and rates. DB: - The negative relationship between uncertainty and private hires and manufacturing orders no doubt helps to explain the weakness in both of these measures in recent months...Our analysis suggests that the rise in economic policy uncertainty has significantly impeded the U.S. recovery from the financial crisis.

Stephanie Kelton on Le Show - Research associate Stephanie Kelton made an appearance on Harry Shearer’s “Le Show” over the weekend. In the interview they managed to cover just about all of the major themes related to the debt and deficit anxiety that commands our civic dialogue (solvency constraints, inflation, interest rates, the gold standard, and so on; all the greatest hits). Kelton gave a particularly concise response to the claim that we are leaving ourselves at the mercy of China when we run up public debt. Kelton explained that the Chinese are not the main holders of US government debt (not by a long shot), and that their holdings are not some nefarious long-term blackmail setup, but basically a function of China’s export-led growth strategy (this segment begins around the 21:40 mark): [W]hen the Chinese send us more goods and services than we send them, they end up with US dollars. … So, we get the stuff, and they get the credit to their bank accounts. Now, what they do is they say “we have all these US dollars in our bank account, but they don’t pay us any interest, so why don’t we flip these out of our checking account into our savings account,” which is basically what the US Treasury is to them … They get interest, and because the US government is only promising to pay US dollars, and because it’s the issuer of the US dollar and it can never run out, it can always pay the interest, it can always pay back the principal … So they just keep flipping it back and forth from checking into saving, all the while, they’re toiling away the day in conditions none us would want to be working in, producing things … sending them to us to enjoy. And what do they get in return? They get more credits to their checking account that they flip into their savings account. And we act like they’re winning and we’re losing, and we send convoys of high level government officials over there to tell them to stop allowing us to abuse them this way. Listen to or download the full podcast here.

How Much Federal Debt Does the Fed Own? - The fine folks at FRED, the economic data service of the St. Louis Fed, recently added seven new data series showing how various measures of federal debt compare to the economy as a whole, as measured by GDP. I particularly enjoyed this one, showing the federal debt owned by the Federal Reserve banks. Quantitative easing gets all the press these days and understandably so given the recent spike in Fed ownership of Treasuries, now equivalent to almost 11 percent of annual GDP. But the chart also reminds us of that brief period early in the financial crisis when the Fed sold lots of Treasuries so it could make loans and buy other assets.

U.S. Congress may face another debt-limit showdown in 2013 (Reuters) - A U.S. debt-ceiling increase could be headed for a Wall Street-rattling showdown in 2013 if Congress, as expected, shuns a quick and easy fix at the end of this year in favor of another round of last-minute brinkmanship. Regardless of who wins the November 6 elections, many congressional aides and Capitol Hill observers are predicting that lawmakers will go right up to the deadline - probably around mid-February or early March - before increasing the $16.4 trillion limit on borrowing that is nearly exhausted. While no one is certain of another 11th-hour fight in February or March, no one is ruling it out. Without the bigger government credit card, the U.S. Treasury Department no longer would be able to finance government operations, forcing widespread shutdowns and default on debt payments to creditors from China to England.

Treasury sees debt limit reached near end of year - The Treasury Department said Wednesday that it expects to reach the debt limit near the end of the year. With extraordinary measures, the government will be able to meet its obligations until early in 2013, the department said. Increasing the debt ceiling is another challenge facing Congress after the presidential election. The politics of raising the limit may complicate negotiations over the so-called fiscal cliff, the tax hikes and spending cuts set to take place at the start of the year. Treasury said it expects the first floating-rate auction to be at least one year away. It said no decision had been made about allowing negative rates at bill auctions. The comments came as the Treasury announced it would sell $72 billion in notes and bonds next week in its quarterly refunding auctions. Treasury has held the refunding size steady for two years.

Get ready for the phony debt fight - There is almost certain to be a renewed push for cutting the budget regardless of who wins the election. This is a big part of Romney’s and the GOP’s agenda. However, President Obama has also indicated a willingness to cut most areas of spending, including Social Security and Medicare, as part of a “Grand Bargain.” In this context, the decision of a group of corporate CEOs to form a new group, the Campaign to Fix the Debt, to push for a budget deal can be seen as a big deal. This group brings back memories of a 1970s TV ad that featured a middle-aged man wearing a bad toupee pushing totally fake-looking toupees. The narrator assured viewers that no one would recognize that these toupees were not your real hair saying, “I wouldn’t lie to you, I’m the president of the company.” It’s hard not to think of this ad when listening to the agenda being pushed by the Campaign to Fix the Debt. This is yet another project supported by Wall Street investment banker Peter Peterson. For the last two decades Peterson has used his fortune to bankroll a number of organizations that were ostensibly pushing fiscal responsibility, but always had the same punch line: cut Social Security and Medicare. This latest gambit has the interesting twist that it involves 80 CEOs of major companies who are lending their time and good names to the effort to put in place a large-scale deficit reduction package. The plotline is that the 80 CEOs who are demanding that Congress act on the debt are supposed to be acting out of civic commitment. We are supposed to be impressed that these busy and important people are taking their time to focus on the country’s financial situation. They hope this will convince us that the debt is really an important problem.

Fix the Debt, Destroy the Recovery: The Fix the Debt campaign, much like the Bowles-Simpson Commission and the propaganda of the Peterson Foundation generally, contends that the projected national debt is depressing business willingness to invest now. Presumably, businesses are worried about inflation and uncertainty. But the government can fund ten-year bonds at less than 2 percent interest and thirty-year bonds at less than 3 percent. So investors don’t seem worried about inflation. It’s not lack of confidence in deficit reduction that’s depressing business investment but lack of confidence in consumer purchasing power. If anything, the economy needs more public spending to get us out of a deep slump brought to you by the very people behind this campaign. Cutting the deficit prematurely will only depress purchasing power and deepen the slump. That’s the real lesson of Greece, Spain, Portugal, et al. The only difference between the “Fix the Debt” campaign and a dozen kindred efforts such as the Committee for a Responsible Federal Budget, the Pew-Peterson Commission, the Concord Coalition, and Bowles-Simpson Redux is that this one is funded and led by corporate CEOs. The campaign is on track to raise $100 billion in corporate money.

Supersonic Fiscal Free Fall - Now that we are facing this self inflicted sequestration law that the U.S. Congress has imposed on itself (Budget Control Act of 2011), the Government has three basic options moving forward:

1) They could simply let the stated law scheduled for the beginning of 2013 go into effect. This draconian, albeit way overdue fiscal budget policy measure, features a number of tax increases and spending cuts that are expected to weigh heavily on economic growth, which would most likely drive the economy back into a recession or even worse. The positive side of taking this bold step, would be that the deficit, as a percentage of GDP, would be cut in half.

2) They could repeal some or all of the scheduled tax increases and spending cuts, and once again raise the debt ceiling. This would of course add to the current $16 trillion mega debt deficit, and demonstrate to the world that the Nation is unwilling or unable to get its unmanageable fiscal budget under control, increasing the odds that the United States could face a crisis similar to that which is occurring in Europe.

3) They could draw up some middle of the road map, with a combination of moderate tax increases and fewer spending cuts, in a measured attempt to address the run away budget deficit over a longer period of time, which would have a more modest impact on current growth. The critical issue here is, would this approach be viewed as credible, or simply seen as just another bogus boot of the same proverbial can.

Cliff Confusions - Krugman - While I have access, let me point you to an excellent post by Suzy Khimm making a point I should have made: the only reason to worry about the fiscal cliff is if you’re a Keynesian, who thinks that bringing down the budget deficit when the economy is already depressed makes the depression deeper. And the same logic actually says that we should not just avoid spending cuts, we should raise spending right now. What Khimm doesn’t mention is that a lot of the Very Serious People don’t seem to get that. As Jon Chait pointed out, finance bigwigs published an utterly ludicrous letter claiming that the risk from the fiscal cliff is that interest rates might spike — which is completely off base. The only way I can make sense of that letter is cognitive dissonance — they’re so wedded to the notion that the danger is that the invisible bond vigilantes will scare off the confidence fairy that they can’t admit, even to themselves, that what’s really worrying them right now is straight Keynesian concerns.And the supposed deficit hawks, who should be celebrating the prospect of such a big move in their direction, aren’t. Why? As Khimm suggests, this isn’t the deficit reduction they wanted — it was supposed to involve hurting the working class, not raising tax rates at the top (which were supposed to be cut!).Call it a teachable moment.

If Deficits Are So Bad, Shouldn't We Be Celebrating the Coming 'Fiscal Cliff'?: There has been a steadily growing drumbeat in recent weeks about the looming "fiscal cliff." Unless Congress and the President agree otherwise, automatic spending cuts and tax increases -- agreed upon during the 2011 deficit standoff -- are supposed to take effect in January. Major media outlets and politicians have been nearly universal in warning of the coming catastrophe of driving off this cliff. In an entirely characteristic report, NPR this morning cited a study by George Mason that if the automatic fiscal triggers go into effect, a series of disasters will ensue, including a loss of a quarter million federal jobs. NPR further noted that the triggers could prompt cuts to "everything" the government funds, including cancer research, individual and public health more broadly, education, homeland security, air traffic control, food inspection and Pentagon-related spending. According to virtually all such reports, the mass layoffs and cuts to vital programs will cause substantial economic pain to those directly affected and will also undermine economic growth more broadly, possibly reversing the fragile recovery and sending the nation back into recession.It is debatable whether the immediate effects of the spending cuts and tax increases will have as disastrous an effect on the economy as the dire warnings insist. But what's important to point out here is the premise that there is virtually universal agreement that efforts to reduce the deficit are clearly harmful in the short run, if not beyond. In other words, the recent and mounting hysteria about the fiscal cliff reveals definitively the utter incoherence at the heart of our discussions about deficits in particular and the role of government in economic life more generally. It turns out that when the chips are down, everyone knows that during weak economic times, government spending is vital.

Mr. Market Says the Military Industrial Complex Will Be Largely Spared in Upcoming Grand Bargain - Yves Smith -- It’s been remarkable to witness the public complacency in the face of the certain-in-trajectory, less-clear-in-details “Grand Bargain” that Obama and Romney are determined to foist on the hapless middle class and poor in this country. In the first presidential debate, Obama flat out said he agreed with Romney’s position on Social Security (as in it needs to be “reformed” which is NewSpeak for cut). And both candidates have been eager to present themselves as responsible deficit cutters. In reality, it’s madness to cut government spending now. As we and other sites have written at some length, the economic rationale is dead wrong. Not only have households been deleveraging (mainly involuntarily, via defaults) but businesses have been net saving, which means government needs to take up the slack, or wages and GDP will fall, making the debt burden to GDP even worse (if you doubt me, this experiment has been run multiple time, in Latvia, Ireland, Greece, Spain, and Portugal, and the results in every case confirm that austerity in the midst of a balance sheet recession only makes matters worse). Even normally agnostic investors are making the case for more government spending. For instance, from Cullen Roche via Clusterstock: The unusually slow recovery in private investment has meant the government’s needed to play a larger role than usual in the recovery. Private investment is still crawling out of a deep hole, recovering just half of the peak to trough losses during the crisis. A substantial decline in government spending at this point would almost certainly send the US economy into contraction. And to make matters worse, the promoters of this scheme have been cooking the math to make the US’s situation seem worse than it really is.

The Great Betrayal – and the Cynicism of Calling it a Grand Bargain - Bill Black - Robert Kuttner has written much of the column I intended to write on this subject, so I will point you to his excellent column and add a few thoughts. Kuttner wrote to warn that Obama intends to seek a “grand bargain” causing the U.S. to adopt the type of austerity program that threw the Eurozone back into a gratuitous recession. Worse, Obama intends to begin to unravel the safety net (Social Security, Medicare, and Medicaid) to convince the Republicans to enter into this Faustian bargain. Just as only a conservative Republican could visit “Red” China, only a Democrat can begin the destruction of the safety net. The difference, of course, is that normalizing relations with China was a good thing while unraveling the safety net is a terrible thing. Wall Street’s greatest desire is privatizing Social Security. Wall Street stands to make scores of billions of dollars annually in additional fees should it ever buy enough politicians to privatize Social Security. The Republican Party’s greatest goal is unraveling the safety net. They always wish to attack the most successful and popular programs introduced by the Democratic Party. Their problem is that they know it is toxic for Republican candidates to try to destroy the safety net. Only Democrats, through a “Great Betrayal” can give Republicans the political cover they need to unravel the safety net.

Sen. Graham: Obama move on defense layoff notices ‘patently illegal’ - Sen. Lindsey Graham (R-S.C.) says that he will do anything he can to block the Obama administration from reimbursing defense contractors for severance costs if the firms don’t send layoff notices to employees. The Obama administration issued guidance Friday that said defense firms’ costs would be covered if they have to layoff workers due to canceled contracts under the across-the-board cuts set to take effect Jan. 2. The layoff notices have become a politically charged issue because they could have come just four days ahead of the election because of a 60-day notice required by federal law for mass layoffs. Graham and other Republicans were livid after the Obama administration issued the guidance on Friday telling contractors that their legal costs would be covered due to canceled contracts under sequestration, but only if they did not issue layoff notices before sequestration occurs — and before the November election. “I will do everything in my power to make sure not one taxpayer dollar is spent reimbursing companies for failure to comply with WARN Act,” Graham told The Hill in a phone interview Monday. “That is so beyond the pale — I think it’s patently illegal.”

CNBC’s Quick uses Clinton to aim at Krugman, but shoots herself in the foot - William K. Black - Becky Quick is a television co-host of a business entertainment program on CNBC. She has written a column stating that Paul Krugman’s “claim that there is no fiscal crisis isn’t just laughable, it’s downright dangerous.” She argues that the “only problem” with Krugman’s conclusion was: “It is hard to find anyone who actually agrees with him.” She is furious that Krugman concluded that the Bowles-Simpson austerity plan is “a really bad plan.” Quick makes no effort to support her claim that she cannot find “anyone” who agrees that austerity as a response to a Great Recession is “a really bad plan.” Quick’s claim is revealing about CNBC’s crippling pathologies. She, one of CNBC’s most prominent hosts, has systematically excluded herself from obtaining any understanding of economics, from discussions with the vast majority of macroeconomists, and from any study of the European experience with austerity. Her column exemplifies her systematic exclusion of macroeconomists who believe that austerity would be “really bad.” Her column does not cite any economists other than Krugman. How can one write a column about macroeconomics that attacks the conclusion (but none of the reasoning) of a macroeconomist who is a Nobel Laureate, and assert that no one agrees with the his views? Here’s a hint for Quick’s consideration – one does not receive a Nobel Prize if no one in your field agrees with your scholarship. Quick rests her assertion that austerity would be desirable on her idiosyncratic view that Bowles-Simpson’s austerity is a thing of “beauty.” She asserts that its “beauty” arises from causing all Americans to suffer – gratuitously – thereby “unify[ing] the country.”“As President Clinton notes, nearly every constituency will find some part of it hard to swallow. But the beauty of the [Bowles-Simpson austerity] plan is that it attempts to unify the country through shared sacrifice that is also grounded in some form of fiscal reality. And there’s nothing ‘really bad’ about that.”

How Much More Deficit Reduction Do We Need? - Our new analysis explains that policymakers could stabilize the public debt as a share of the economy over the coming decade by enacting $2 trillion more in deficit reduction. Here’s the opening: Some budget watchers are urging the President and Congress to enact $4 trillion in savings over the next ten years in order to address the deficit problem. The $4 trillion figure has assumed something of a life of its own. In fact, there is no single magic number. For example, policymakers could achieve the most essential goal — stabilizing the public debt over the coming decade — by enacting $2 trillion in savings. The fact that $2 trillion in additional deficit reduction is sufficient to stabilize the debt, rather than a larger amount, is due both to policies that the President and Congress have enacted over the last two years that have reduced deficits and to new Congressional Budget Office (CBO) economic and budget projections for the coming decade, which are more sanguine than earlier projections. . . . To be sure, achieving bipartisan agreement on $2 trillion in additional budget savings, which would stabilize the debt at about 73 percent of Gross Domestic Product (GDP) over the latter part of the decade (see graph), will present a serious challenge for policymakers. This would produce a total of $3.7 trillion in deficit reduction, including the $1.7 trillion enacted last year, and entail revenue increases and program cuts reaching 1.8 percent of GDP by 2018. That would make the overall package as large as the 1990 deficit-reduction agreement and larger than that of 1993 — the two big budget deals that played an important role in converting the large deficits of the early 1990s to four years of budget surpluses that began in 1998.

Mitt Romney’s voodoo spending cuts - Ezra Klein - Thirty-two years ago, George H.W. Bush called the idea that tax cuts would pay for themselves “voodoo economics.” He was right, but his party decided he was wrong: Bush was exiled from conservatism after raising taxes as part of the 1990 budget deal, and every Republican presidential nominee after him has offered huge tax cuts as a matter of course. Mitt Romney, interestingly, is an exception to this rule: He’s not offering huge tax cuts. Or, to be more precise, he is offering huge tax cuts but he’s promising to pay for them by closing tax breaks and ending deductions. That is to say, he’s at least admitting that tax cuts cost money and need to be paid for. Given that his various numbers don’t add up, there’s a bit of pixie dust there, but it is, rhetorically at least, a turn away from voodoo and towards responsibility. More worrying is what we might call Romney’s voodoo spending cuts: His promise that his promised spending cuts, despite being deeper than any in modern history, won’t hurt anyone, anywhere, at any time, for any reason. In fact – shades of supply-side economics here — they’ll probably make government services even better.

Protecting the Child Tax Credit at the Fiscal Cliff - The Child Tax Credit (CTC), a key piece of the safety net for low- and moderate-income families, is in jeopardy as the nation hurtles towards the fiscal cliff. Not only could the 2001 expansion of the credit die, but so could provisions in the 2009 stimulus that made the credit much more available to low-income families. My biggest fear is that Congress will cut a year-end deal that extends the 2001 expansion but lets the important 2009 changes die. To explain what’s happening, here is a bit of history: Prior to 2001, the credit was $500 per child. Families whose credit exceeded the income tax they owed could get the balance as a refundable credit only if they had at least three children and paid enough payroll tax. The credit phased out for single parents with income over $75,000 and married couples with income over $110,000. The 2001 act doubled the credit to $1,000 per child and broadened its refundability. Families could receive 15 cents of their credit for each dollar of earnings over $10,000. (The threshold was indexed for inflation and would be about $13,000 in 2013.) Stimulus legislation in 2008 and 2009 reduced the threshold to $8,500 and then to $3,000. The more generous refundability level enacted in 2009 is critically important for low-income families.

How the fiscal cliff affects the poorest Americans - The fiscal cliff hits the richest Americans harder than the poorest ones: If all of the tax changes happen on Dec. 31, the top 20 percent of Americans would see their effective tax rate rise about 5.8 percentage points on average, while the bottom 20 percent of Americans would see their tax rate rise about 3.7 percentage points, according to the Tax Policy Center That’s largely because of the Bush tax cuts to income, capital gains and the estate tax. But certain parts of the fiscal cliff have would have a much bigger impact on poor Americans than rich ones. Both the Child Tax Credit and Earned Income Tax Credit were expanded under Obama’s 2009 stimulus to help lower-income Americans—and despite being scheduled to expire on Dec. 31, these extensions have seen less attention than other elements of the fiscal cliff. The EITC was originally created to encourage poor Americans to work, and it’s been found to prove especially effective in increasing the employment of single mothers and decreasing welfare rolls. The 2009 stimulus raised the threshold of the credit phaseout from $3,000 to $5,000 and increased the wage subsidy from 40 percent to 45 percent for families with three or more children. The Child Tax Credit was also expanded in 2009, building upon 2001 changes that doubled the tax credit to be as high as $1,000 per child under 17. Under the stimulus, if a family was eligible for a credit that was bigger than the taxes they owed, they received part of the balance for earnings above $3,000.

More on the Myth of the Exploding Safety Net - Our recent post on false claims of an ever-expanding safety net explained that virtually all of the recent growth in spending for means-tested programs is due to the recession and rising costs throughout the U.S. health care system, which affect costs for private-sector care at least as much as for Medicaid and other government health programs. We’ve since updated the CBPP analysis that we cited in that post to incorporate the latest Congressional Budget Office (CBO) projections and some other changes. But the basic picture remains the same.Our paper finds:[F]ederal spending for low-income programs outside health care (including refundable tax credits such as the Earned Income Tax Credit) averaged 2.1 percent of GDP over the past 40 years. This spending peaked at 2.9 percent of GDP in fiscal year 2010, a substantial increase. But it has already fallen in 2011 and 2012, and CBO projects that it will return to the prior 40-year average of 2.1 percent by 2018 and then fall further, to 1.75 percent of GDP, by 2020 — a level well below the prior 40-year average (see graph). The above figures include expenditures for both mandatory (entitlement) and discretionary (annually appropriated) programs. .

FEMA loses nearly $900 million if sequester cuts hit: The Federal Emergency Management Agency has a $14.3 billion budget to coordinate the national response to disaster situations like Hurricane Sandy. Should the sequester take effect, the White House estimates that the agency would lose about $878 million, largely from programs that provide direct relief to disaster victims. That said, whether or not the sequester goes into effect, Congress has also provided new emergency funding for disaster relief thanks to the debt-ceiling deal. Here’s a closer look at how the sequester would hit some of FEMA’s biggest programs:Disaster relief, FEMA’s biggest budget item by far, takes the heaviest hit: It loses 8.2 percent of its budget, which comes out to a $580 billion cut. But other, smaller programs would also lose funds: Under the sequester, the Pre-Disaster Mitigation Fund, which sends states and local communities funds to prepare for disaster situations, would have $3 million cut from its $36 million budget. Even if the sequester doesn’t take effect, federal disaster relief still faces a hard cap for funding. Under last year’s Budget Control Act, lawmakers agreed to $917 billion in cuts over 10 years that would occur regardless of what happened with the supercommittee and the sequester.

Obama cuts FEMA funding by 3 percent. Romney-Ryan cuts it by 40 percent. Or more. Or less.: Whether President Obama or Republican nominee Mitt Romney wins the election, one thing seems clear: FEMA funding is likely to go down next year, but by very different orders of magnitude. The president has proposed cuts to the Federal Emergency Management Agency for 2013 that would reduce overall funding by about 3 percent, with $1 billion trimmed from the Disaster Relief Fund but more money given to state and local programs. By comparison, Romney and running mate Rep. Paul Ryan have supported far steeper cuts to discretionary spending overall—a broad pool of programs that includes FEMA funds and disaster relief. Although it’s unclear whether the GOP ticket would specifically spare FEMA from broad-based cuts, Ryan’s budget would make it harder to fund disaster relief because the aid would have to be offset by budget cuts elsewhere. Here’s a closer look at what they’ve all proposed:

Disasters and Politics - Krugman - So let me just take a moment to flag an issue others have been writing about: the weird Republican obsession with killing FEMA. Kevin Drum has the goods: they just keep doing it. George Bush the elder turned the agency into a dumping ground for hacks, with bad results; Clinton revived the agency; Bush the younger ruined it again; Obama revived it again; and Romney — with everyone still remembering Brownie and Katrina! — said that he wants to block-grant and privatize it. (And as far as I can tell, even TV news isn’t letting him Etch-A-Sketch the comment away). There’s something pathological here. It’s really hard to think of a public service less likely to be suitable for privatization, and given the massive inequality of impacts by state, it really really isn’t block-grantable. Does the right somehow imagine that only Those People need disaster relief? Is the whole idea of helping people as opposed to hurting them just anathema? It’s a bit of a mystery, calling more for psychological inquiry than policy analysis. But something is going on here.

Very good points on FEMA -- From Jordan Weissmann: We’ve nationalized so many of the events over the last few decades that the federal government is involved in virtually every disaster that happens. And that’s not the way it’s supposed to be. It stresses FEMA unnecessarily. And it allows states to shift costs from themselves to other states, while defunding their own emergency management because Uncle Sam is going to pay. That’s not good for anyone. When FEMA’s operational tempo is 100-plus disasters a year, it’s always having to do stuff. There’s not enough time to truly prepare for a catastrophic event. Nobody is taking the position, that I know of, saying get rid of FEMA, the federal government should have no role responding to disasters. The position is, no no, we need to save FEMA and the Federal Government for the big stuff: Sandy, Katrina, Northridge. But states should be charged to take care of the other, more routine stuff that happens every year. There are always going to be Tornadoes in Oklahoma and Arkansas. There are always going to be floods in northwest Ohio and Iowa. There are always to be snowstorms in the Northeast. There are always going to be rain storms, fires in Colorado. They happen every year. There’s no surprise here. And they don’t have national or regional implications, economically or otherwise. If they do, that’s a different question…

Fixing Disaster Relief is Simple! Let Markets Work. - I’ve often commented on how childish, really adolescent, the views of libertarians are. But it’s rare that I see such a stunning example. In a recent NYT “Room for Debate,” Russell Sobel of The Citadel gives us this: Fixing disaster relief is simple: greater use of decentralized markets, and focusing government on its proper role. After all, “Economists from Adam Smith to Friedrich Hayek to Milton Friedman have stressed the inherent problems in central planning.” So there you go. QED. Here, Sobel explains, is the “simple” solution to solving any problems of disaster relief: By renting the [Chicago Board of Trade] trading floor and using the exchange, supplies and services would be better allocated to disaster victims than they are now by FEMA. Because: Such mechanisms simply work better It’s so simple! And obvious! Why didn’t anybody think of this before? Heck, a thirteen-year-old could have come up with it.

Why Should Government Respond Differently to Natural vs. Economic Disasters? - Natural disasters are often highpoint moments for the public sector, reminding us of the power of common institutions that allow citizens to help each other in times of need. The residents, say, of sunny Los Angeles needn't do anything special at this moment, because they have already been doing something—helping fund FEMA with their tax dollars so that it has the capacity to respond... But here's a question: If most of us take for granted that we should be there for our fellow citizens during natural disasters, using the tool of government, why is it so controversial that we should also lend a helping hand during man-made economic disasters? Why are unemployment benefits under attack in numerous states, even as millions remain jobless through no fault of their own? Why is an idea as obvious as a direct government jobs program off the table in Washington? The answer is no great mystery: Critics of a government safety net tend to think that individuals will solve their own economic problems... Even if you believe that individual willpower matters a lot, as I do, it's naive to imagine that individuals can do much in the face of large-scale economic downturns driven by structural factors that are national and even global in scope. ... Meanwhile, charity will simply never have enough resources to provide a decent safety net...

Rebuilding New Jersey and Coastal Moral Hazard - Read Maureen Dowd's piece and see if you recognize that the Governor of New Jersey seeks a very large FEMA bailout for his stricken state. When you spend "other people's money", do you have the right incentives to rebuild in a smart way? A "what if". What if New Jersey's residents knew that there would never be another FEMA $ for rebuilding their state's residential and commercial structures and any new structures that would be built post-Hurricane Sandy would have to withstand future natural disasters or the people of New Jersey would be on the hook for such damage? I predict that in the "no FEMA" equilibrium, that the state's residents and leaders would invest in taking many more precautions to reduce their exposure to flood and hurricane risk. Zoning laws would change to discourage construction in the riskiest areas and to reduce population density in those areas. Coastal home owners would be incentivized by the state to take much greater precautions to reduce ex-post damage. Given the reliance on FEMA $, how will coastal areas such as Atlantic City be rebuilt? Will a higher quality capital stock that is more flood resilient be built? Will FEMA $ be used to rebuild in the same places using the same materials as before?

How do we ‘pay’ for Hurricane Sandy? - As the costs of this once-in-a-generation storm mount for America’s east coast, there will invariably be cries that the country is bankrupt, and will therefore be unable to ‘pay’ the cost reconstruction. Even now, as the news has been unfolding the mainstream neo-liberal ideologues have been out in force preaching that the US government was now facing a major fiscal crisis and its capacity to deal with this event was severely limited. Imagine the reactions of the people in shock after the event to hear the news bulletins telling them that their government was crippled and unable to help. It certainly didn’t go down well after Hurricane Katrina. The reality is that the claims by the macroeconomists were not ground in any credible theory. It is bad enough they provide this misinformation and lies when unemployment is rising. But when thousands of people are facing the calamity of destruction of the sort being leveled by this historic storm, it is nothing short of being obscene lies – all courtesy of our neo-liberal economist brethren. As long as the budget deficits are filling the spending gap left by external deficits and private domestic saving (as a sector) and the economy is not over-stretching the real capacity of the resource base to respond to this nominal demand in real terms (that is, by producing output) any statements to this effect are to be interpreted as conservative ideological rhetoric. When the US engages in a war, nobody ever invokes the issue of “affordability” or asks the question, “How do we pay for this?”. Yet somehow in anything having to do with social reconstruction, entitlements, infrastructure, disaster relief, the question invariably arises.

Fix the Debt or Save the Coasts? - One of the casualties of Hurricane Sandy is the premise that America’s biggest economic problem is deficit reduction. That’s because the United States just became a much larger version of the Netherlands. Once we get through the election, official Washington may be willing to talk about this. As events like Sandy become more common, and the ocean levels rise even in the absence of hurricanes, the communities of the Eastern and Gulf seaboard will increasingly be at risk of regularly being underwater—unless we build a massive system of seawalls, dikes, levees, storm-surge barriers, and pumping facilities, as the Dutch have done for centuries. The immediate damage from Sandy will cost upwards of $50 billion. But looking forward, America’s seaboard cities will need to spend serious money not just on seawalls, but on public improvements to prevent flooding of subways and electric power stations and the swamping of water and sewer systems. Low-lying communities will need to be elevated, and some will simply need to be rebuilt on higher ground. The new normal is here, the legacy of our denial of the reality of climate change. The federal government needs to do a comprehensive assessment of the public investment necessary to protect our coasts, which will run into the trillions of dollars. One consequences of that reality is that it blows away past assumptions about deficit reduction. The government needs to begin a multi-year public investment program. With interest rates at historic lows, the government could issue a special series of flood-prevention bonds.

Sandy Disaster Aid Puts Boehner In A Big Political Bind - You haven't heard much...or perhaps anything...yet about a disaster relief supplemental appropriation for the state and local governments and individuals who were hit so hard by Sandy. My guess is that the disaster relief package will jump the fiscal cliff as a priority immediately after the election and that it will be dealt with weeks before the fiscal cliff deadlines at the start of January. There are three questions. First, how much aid will be needed and what will it be used for? The state and local governments that were in Sandy's path have huge infrastructure problems and the individuals who have been affected will look to Washington for assistance in rebuilding. Second, congressional Republicans demand reductions in other spending to offset the impact of the new Sandy-related aid? No matter what the disaster, that's been the pattern the past two years and it is hard to see it changing for a storm that ravaged primarily blue states. Third, how will House Speaker John Boehner (R-OH) deal with this situation? If the tea party wing of the GOP opposes the aid without offsets, Boehner will be forced to chose between supporting a package that will be extremely important to a large number of states -- including his own -- or opposing the package without spending cuts to boost his chances of being reelected speaker.

Sandy Should Remind Us Why We Need A Big, Strong Federal Government - At least 26 people are dead. Millions lack power. Property damage could reach $20 billion, according to early estimates. This is a time for rescue, recovery, and rebuilding. If you want to do your part, you can donate to the Red Cross here. But, with the presidential election less than a week away, this is also a time for politics. The central debate of the campaign has been about the role and size of the federal government. Nothing could shed light on that question more than an unfolding natural disaster. Seven years ago, when Hurricane Katrina struck New Orleans, we saw what happens when the federal government fails to respond to catastrophe. Devastation was inevitable, given the nature of the storm and the geographic idiosyncrasies of New Orleans. But the Federal Emergency Management Agency (FEMA), ensnared with ambiguous lines of authority and hobbled by incompetent management, was slow to respond. Particularly in the critical days after Katrina struck, overwhelmed local and state officials couldn’t get the help they needed.

Don’t Ignore the Cliff, Make It a Better One - Last week former Senators Pete Domenici (R-NM) and Sam Nunn (D-GA), in the Washington Post, urged policymakers to “build” a “better” fiscal cliff. As they explain: Most pundits believe that, rather than go over the cliff, Congress will kick the can down the road during the lame-duck session after Election Day. We suggest that the lame-duck Congress should change the “can” before it is kicked. Such a strategy has several advantages. First, it could avoid the worst effects of the fiscal cliff without ignoring our fundamental fiscal challenge, the unsustainable mismatch between spending commitments — largely for health-care programs — and current revenue projections. Absent more constructive action, simply postponing when we go over the cliff could hurt business confidence, worry investors and lead to another disruptive debate over raising the debt ceiling. Second, it is politically achievable. While it is unlikely that a grand bargain to fix the debt could be reached during the lame-duck session, Congress could accomplish replacing the fiscal cliff with broad targets for deficit reduction along the lines of Simpson-Bowles and Domenici-Rivlin, to take effect if no other deal is reached. Third, this strategy would increase the likelihood of reaching a comprehensive budget deal. If we learned one thing over our many years of service in the Senate, it is that elected officials require political cover on difficult votes. Enacting such a deal means that Democrats have to be willing to consider reforming — over time — Medicare, a key driver of U.S. deficits. Republicans will have to consider raising revenue through reducing tax expenditures, if not through higher rates. Neither will be an easy vote to cast.

'White House Quells Talk of New Tax Cuts' - Given how slow the recovery has been, we should at least try to maintain the fiscal stimulus we have. And if we can help middle class households a bit at the same time, so much the better. Unfortunately...White House quells talk of new tax cuts, by James Politi, FT: The White House has sought to damp speculation it is considering new tax cuts for the middle class, as it comes under pressure from fellow Democrats to limit the economic damage from the expiration of the payroll tax cut at the end of the year. The expected increase in payroll tax would be one element of the “fiscal cliff” ... that would shrink the disposable income of middle-class American workers. One option for Barack Obama would be to propose new temporary tax breaks for the middle class, which would go a long way towards easing those concerns. However, such a move would probably face resistance from Republicans... I guess that settles it. There's no way to use the fact that Republicans are proposing tax cuts for the wealthy while resisting a tax cut that helps the middle class to any political advantage. Republicans would resist, so why bother?

Higher Taxes Hurt Job Creators? That's Malarkey - Robert Reich - The rich are far richer than they used to be, while most of the rest of us are poorer. The latest data show the top 1 percent garnering 93 percent of all the gains from the recovery so far. But median family income is 8 percent lower than it was in 2000, adjusted for inflation. The gap has been widening for three decades. Since 1980 the top 1 percent has doubled its share of the nation’s total income—from 10 percent to 20 percent. The share of the top one-tenth of 1 percent has tripled. The share of the top-most one-one hundredth of 1 percent—16,000 families—has quadrupled. The richest 400 Americans now have more wealth than the bottom 150 million of us put together. Meanwhile, the tax rates paid by the wealthy have dropped precipitously. Before 1981 the top marginal tax rate was never lower than 70 percent. Under President Dwight Eisenhower it was 93 percent. Even after taking all the deductions and tax credits available to them, the rich paid around 54 percent. The top tax rate is now only 35 percent and the tax on capital gains (increases in the value of investments) is only 15 percent. Since so much of what they earn is from capital gains, many of the super-rich, like Mitt Romney himself, pay 14 percent or less. That’s a lower tax rate than many middle-class Americans pay. In fact, if you add up all the taxes paid—not just on income and capital gains but also payroll taxes (which don’t apply to income above incomes of $110,100), and sales taxes—most of us are paying a higher percent of our income in taxes than are those at the top.

World Bank’s Anti-Labor Analysis Is a Dirty Business - It’s a 2012 campaign mantra: On Day One, the new president will reboot the economy by spurring businesses to grow and thrive. Both mainstream candidates have vowed to achieve this, in part by eliminating onerous regulations to “unleash” the long-suppressed power of American industry. The story is surprisingly similar across the pond. The financial giants of Europe’s troika pummel Greece and other struggling Eurozone countries with a blitzkrieg of kamikaze deregulation, conditioning financial “rescue” on giving markets free rein to work their magic, unencumbered by law. The flipside of this celebration of the Invisible Hand is, inevitably, a merciless beatdown on labor, stripping protections like unemployment aid and wage standards.The World Bank has taken theextremely dubious science of deregulation one step further by creating a guide, known as the Doing Business report, that quantifies the regulatory “burden” that investors may face in various countries. The 2013 report was released this week.Echoing the corporate “job creator” mythology of the Washington consensus, Doing Business encourages financiers and governments to erode public-interest protections, including safeguards for unions and workers. Labor groups say the publication'swarped views on regulation and worker protectionseffectively gives a statistical justification for leveraging economic aid or investment to pressure countries to privatize, deregulate and undermine unions.

Econ4 Discusses Jobs and Job Creation - Yves Smith - Econ4 has released the first video in its series, The Bottom Line. This offering debunks the propaganda that tax cuts for the wealthy create jobs. In fact, it show the reverse is true, that tax breaks for the rich lead to concentrations of wealth at the top, which lowers economic growth. This segment is addressed to a generalist audience and I hope you circulate it widely.

The Real Barrier to Tax Reform - Across the political spectrum, it is generally accepted that the basic goal of tax reform should be to broaden the tax base by eliminating tax preferences and lowering statutory tax rates. It is also believed that the principal barrier to such a reform is the resistance of special interests to the elimination of any particular preference that benefits them. But what if, to paraphrase Pogo, the special interest is us? In all my years in Washington, I have never met anyone, even a professional lobbyist, who thought she was a special interest. That’s always somebody else, someone selfish whose interests are contrary to the national interest. Everyone always says, and may even believe, that whatever special deal they want or wish to preserve in the budget or the tax code is for the benefit of a broad segment of society or the economy. At least insofar as tax expenditures are concerned, this is basically true. What follows are the top 10 special provisions of the tax code that reduce revenues, with the estimated annual revenue loss.

Bringing the Bubble to the House of Representatives - Or, "Who will rid me of this troublesome study?"From The Hill's On the Money: Rep. Sandy Levin (Mich.) said he was disturbed that the Congressional Research Service withdrew the report [over tax rates and their impact on economic growth] because of political pressure, after The New York Times reported that Senate Republicans had taken issue with the study. “It would be completely inappropriate for CRS to censor one of its analysts simply because participants in the political process found his or her conclusion in conflict with their partisan position,” Levin, the top Democrat on the House Ways and Means Committee, wrote to CRS leadership....Staffers for Senate Republicans have confirmed that they lodged complaints over the report, and pushed back on the report quickly after it was originally released.

Withdrawal of Congressional Research Report Raises Questions - The Congressional Research Service has withdrawn an economic report that found no correlation between top tax rates and economic growth, a central tenet of conservative economic theory, after Senate Republicans raised concerns about the paper’s findings and wording. The decision, made in late September against the advice of the agency’s economic team leadership, drew almost no notice at the time. Senator Charles E. Schumer, Democrat of New York, cited the study a week and a half after it was withdrawn in a speech on tax policy at the National Press Club. But it could actually draw new attention to the report, which questions the premise that lowering the top marginal tax rate stimulates economic growth and job creation. “This has hues of a banana republic,” Mr. Schumer said. “They didn’t like a report, and instead of rebutting it, they had them take it down.” Republicans did not say whether they had asked the research service, a nonpartisan arm of the Library of Congress, to take the report out of circulation, but they were clear that they protested its tone and findings.

Tax Policy: You Can’t Handle the Truth - ProGrowthLiberal at Econospeak reminds us of a central tenet myth of this electoral campaign, and an example of political pressure on information sources: Sahil Kapur reports on something that does not surprise me on two levels: The author of a Congressional Research Service study, who found no evidence that tax cuts for high income earners lead to economic growth, is standing by his work, after the legislative branch’s nonpartisan research arm withdrew the report under pressure from Republican leaders. And Democratic principals are demanding to know why CRS caved to GOP pressure. CRS quietly and quickly pulled the six-week old report, despite the wishes of the research arm’s economic team, the New York Times reported Thursday ... The study, which TPM and others reported on at the time, delved into the last 65 years of U.S. tax policy — specifically how marginal rates on high incomes and capital gains taxes impact decision-making. It concluded that reducing effective taxes on the rich does not generate economic growth, but that it does correlate with rising income inequality in the short term. The report’s conclusions aren’t terribly controversial in mainstream economics. What Thomas Hungerford wrote has indeed been the consensus view among economists who are not prostituting themselves for Mitt Romney...

War on Facts: Republicans Complain About Nonpartisan Congressional Study on Tax Cuts for the Rich, Get It Taken Down - Senate Democrats have liberated a report from the Congressional Research Service which Senate Republicans successfully got the nonpartisan research arm of Congress to retract. The report argued that there is no evidence that tax cuts for high-income earners boosts economic growth, which Republicans didn’t want out in the public sphere. Here’s what Senate Democrats said on why they decided to release the retracted report:The analysis, conducted by the Congressional Research Service, compared tax policy with GDP patterns over the last 65 years. The report’s findings undermine a central tenet of Republican party orthodoxy on taxes.The report was first released in September but was removed from public circulation shortly thereafter, apparently after pressure was applied by Senate Republican leaders.We are re-posting the report here, in its original form, so that it receives the unfiltered exposure it deserves as a nonpartisan analysis. The study from Thomas Hungerford is available here.

Warfare waged by the upper class - In an era of Gilded Age inequality, we’ve witnessed the first act of class warfare waged by the upper class. Wall Street bankers, miffed that they weren’t worshiped after blowing up the economy and getting bailed out by taxpayers, anted up millions to displace President Obama. Running for reelection, Sen. Sherrod Brown, a tribune for working people, witnessed more than $30 million in outside money — much of it anonymous — flood Ohio with negative ads against him. Republicans finally settled on a true Plutarch — Mitt Romney — as their banner carrier. Romney has waged a campaign of upper-class disdain for the electorate. He was the “gated candidate.” He didn’t let his presidential race impede plans for a multimillion-dollar expansion of one of his beach homes, complete with elevators for his cars. He scorned revealing tax returns that would reveal the dodges and havens he exploited to pay a lower rate than do the cops who patrol his streets. His disdain was reflected in his agenda. He called for tax cuts for all — particularly the wealthy — without revealing how he would pay for them. He called for deep cuts in domestic spending without revealing what he would cut, other than Big Bird. He called for repealing Obamacare without revealing what he would replace it with. He called for turning Medicare into a voucher system that would put more costs on seniors without revealing how he thought they would pay for it. He championed a “territorial” corporate tax system that would make any profit earned abroad tax-free — giving multinationals multimillion-dollar incentives to move jobs or report profits abroad.

Charles Ferguson: Standing Behind Every Great Con Artist is Someone Like Glenn Hubbard - Mitt Romney has a credibility problem. He changes his beliefs like laundry (abortion, medical insurance, whether Bin Laden was worth killing, attacking Iran), refuses to disclose his tax returns, and won't explain how he could possibly pay for the tax cuts he proposes. But there is another scandal in Romney's campaign -- namely Glenn Hubbard, Romney's chief economic advisor, who was chairman of the Council of Economic Advisors under George W. Bush, and is now Dean of Columbia Business School. I interviewed Hubbard for my documentary film Inside Job, and analyzed his record again for my book Predator Nation. The film interview became famous because Hubbard blew his cool after I interrogated him about his conflicts of interest: "This isn't a deposition, sir. I was polite enough to give you time, foolishly I now see, but you have three more minutes. Give it your best shot." But the really important thing about Hubbard isn't his personality; it's that as an economist and an advisor, he is a total, unmitigated disaster.

Glen Hubbard, the Economic Whore - By Cathy O’Neil - Not every economist is bought, of course, and there are large swaths of economics and econometrics that seems to be genuinely trying to understand how the world works and how they can, say, make healthcare genuinely more affordable or at least create better forecasts. But then you have people like Glen Hubbard who give economics such a terrible name, it makes you want to cry. I have been intending to research Hubbard’s record ever since the New York Times published a rather frustrating piece on him a few weeks ago, insinuating that Columbia’s president Bollinger wanted him fired but not explaining why. But then I reread the article, and I was struck by two passages. Here’s the first: As Mr. Hubbard has moved seamlessly through the Republican upper echelons of Washington, he has also cultivated relationships in corporate suites. He serves on three corporate boards, which collectively paid him $785,000 last year. One of those is the board of KKR Financial, a finance firm affiliated with Kohlberg Kravis Roberts, the private equity firm of which Henry R. Kravis was a co-founder. In 2010, Mr. Kravis pledged $100 million to the Columbia Business School, his alma mater, for the construction of a new building. It was the largest gift in the school’s history. That gift seems to have quieted down Bollinger on his quest to get rid of Hubbard. Next, the article says:Mr. Hubbard has helped to draft many of Mr. Romney’s economic and tax policies, and, at least implicitly, lent his imprimatur to others he did not conceive. The benefits are potentially mutual. If Mr. Romney is elected, Mr. Hubbard is considered a strong candidate for the job of Treasury secretary and even, after Ben S. Bernanke’s term expires, chairman of the Federal Reserve

Our banks are too big. We need to cap their assets. - Simon Johnson - In the discussion of whether America’s largest financial institutions have become too big, a sea change in opinion is under way. Two years ago, during the debate about the Dodd-Frank financial-reform legislation, few people thought that global megabanks represented a pressing problem. Some prominent senators even suggested that very large European banks represented something of a role model for the United States. In any case, the government, according to the largest banks’ CEOs, could not possibly impose a cap on their assets’ size, because to do so would undermine the productivity and competitiveness of the U.S. economy. Such arguments are still heard—but, increasingly, only from those employed by global megabanks, including their lawyers, consultants, and docile economists. Everyone else has shifted to the view that these financial behemoths have become too large and too complex to manage, with massive adverse consequences for the wider economy. And every time the CEO of such a bank is forced to resign, the evidence mounts that these organizations have become impossible to manage in a responsible way that generates sustainable value for shareholders and keeps taxpayers out of harm’s way.

J.P. Morgan, Citi Would Face Highest ‘Capital Surcharge’ Under International Bank Rules - J.P. Morgan Chase & Co. and Citigroup Inc. are the only U.S. banks that would face the highest “capital surcharge” under new international bank rules, according to a list released by international regulators Thursday. The list largely mirrors where analysts expected banks to be based on leaks of internal estimates made by international regulators last year but not released publicly. This year, the calculations have been made public by the Financial Stability Board, a forum of international regulators coordinating the global regulatory response to the financial crisis. At issue is a new requirement for giant banks around the world to maintain fatter capital cushions than other banks to offset the threat they pose to the financial system should they fail. The international agreement, part of the so-called Basel III accord, sets out criteria for determining which banks around the world qualify as “systemically important” and creates five “buckets” into which a bank can fall, ranging from 1% of a bank’s “risk-weighted” assets to 3.5%.

Counterparties: Is your bank too big to fail? -The Financial Stability Board (FSB), the group that tries to coordinate global bank regulation, yesterday released its annual list of “systemically important financial institutions” — the 28 banks which really are too big to fail. According to the NYT’s Peter Eavis, it’s the “list that big banks don’t wish to be on”. And it will be very familiar to Americans: Eight are from the United States: Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street and Wells Fargo. The list has its own hierarchy, with the banks split into four buckets. In the top bucket are Citigroup and JPMorgan, along with Deutsche Bank and HSBC.As Eavis implies, being at the top of this list is not something to be celebrated. Banks in the top bucket face a 2.5% capital surcharge on top of the standard 7% rate that Basel III requires. Banks in the lower buckets face surcharges ranging from two to one percent. These regulations won’t be fully in force until 2019, so there’s plenty of time if you, like Deutsche Bank, don’t currently have the requisite capital.As the phrase implies, being too-big-to-fail isn’t on balance a bad thing: as Steve Waldman notes, the biggest banks “get showered with loan guarantees, cheap public capital, and sneaky interventions to help them recover at the public’s expense”. That’s not fair to smaller institutions, and ends up distorting everyone’s economic incentives.The Bank of England’s Andrew Haldane recently said that there are no intrinsic economies of scale in banks bigger than $100 billion in assets. They do, however, enjoy lower borrowing costs, thanks to their implicit government guarantee. Which means that the bigger they get, the more support they enjoy. That should help ease the pain of those higher capital requirements.

President Obama Repeats the Falsehoods of the New York Times and Andrew Ross Sorkin on Restoring the Glass-Steagall Act - The current issue of Rolling Stone magazine has a one-on-one interview with President Obama. Reading the interview, it became quickly clear how incredibly lax the New York Times was in failing to respond to repeated requests to correct a mountain of false facts that appeared in an Andrew Ross Sorkin article of May 21, 2012. President Obama is now repeating the same utterly bogus information for even wider distribution. This is no small matter. Honing in on what genuinely caused the financial crash of 2008 is critical to understanding its roots and thus enabling the nation to write proper reform legislation. This is what Andrew Ross Sorkin falsely claimed in his column in May:“The first domino to nearly topple over in the financial crisis was Bear Stearns, an investment bank that had nothing to do with commercial banking. Glass-Steagall would have been irrelevant. Then came Lehman Brothers; it too was an investment bank with no commercial banking business and therefore wouldn’t have been covered by Glass-Steagall either. After them, Merrill Lynch was next — and yep, it too was an investment bank that had nothing to do with Glass-Steagall.“Next in line was the American International Group, an insurance company that was also unrelated to Glass-Steagall.” Here is the President of the United States addressing the issue of financial reform and regurgitating Sorkin’s false information in the current interview with Rolling Stone: “I’ve looked at some of Rolling Stone‘s articles that say, ‘This didn’t go far enough, we didn’t institute Glass-Steagall’ and so forth, and I pushed my economic team very hard on some of those questions. But there is not evidence that having Glass-Steagall in place would somehow change the dynamic. Lehman Brothers wasn’t a commercial bank, it was an investment bank. AIG wasn’t an FDIC-insured bank, it was an insurance institution. So the problem in today’s financial sector can’t be solved simply by reimposing models that were created­ in the 1930s.” And, here are the accurate facts as we published in this space, as well as at AlterNet on July 2, 2012: “Lehman Brothers owned two FDIC insured banks, Lehman Brothers Bank, FSB and Lehman Brothers Commercial Bank. “Merrill Lynch also owned three FDIC insured banks. AIG owned, in 2008 at the time of the crisis, the FDIC insured AIG Federal Savings Bank.

Obama Defends His Finance Reform Record to Rolling Stone: A Response (from Matt Taibbi) - The new issue of Rolling Stone features an in-depth interview with President Obama. An interview with a sitting president is always an intense experience for any news outlet, but in this case the Obama interview offered us an additional surprise. When asked a question about financial regulation, the president turned the tables on us and critiqued Rolling Stone's reporting on issues like the Dodd-Frank reform bill. We – well, I, specifically – criticized the Obama administration for not going far enough in reforming Wall Street, and he used the interview as an opportunity to respond on that score. Earlier this week, I spoke to a number of people in and around Washington who were my sources during the time when I was writing the stories about Dodd-Frank that the president referred to in the interview. I forwarded the president's response to them and solicited comments on his take on Dodd-Frank, then used them to put together a sort of respectful answer to the president's critique; you can find that answer further down this page.

'Too Big to Fail' Remains Very Real - Simon Johnson - Prominent voices within the financial sector are increasingly insisting on one point: We have ended “too big to fail.” The idea is simple: through a combination of legislation (the Dodd-Frank legislation of 2010) and supportive regulation (particularly regarding how big banks would be handled in the event of “liquidation”), very large financial institutions are no longer perceived by investors to be too big to fail. Unfortunately, while tempting, this idea is completely at odds with the facts. The market perception that some financial institutions are “too big to fail” is alive and well. If you want to remove that perception, you need to break up our biggest banks.In a high-profile paper prepared recently at the behest of the Securities Industry and Financial Markets Association (Sifma), the lobbying group for the securities industry, Federal Financial Analytics Inc. argues that “too big to fail” has effectively been ended. “U.S. bank holding companies and other financial services firms, regardless of size or the nature of their operations, can no longer be rescued at long-term cost to the federal government or otherwise supported in ways that undermine meaningful market discipline.” (From the first paragraph of the executive summary.)The implication of this report is that there is no need to push for further reforms on this dimension. But when I discussed the specifics of this issue on a panel at George Washington University last Friday with Karen Shaw Petrou, an author of that report, she conceded that creditors still believe that the government stands behind very large bank holding companies and other big financial companies. (There was C-Span coverage of the panel discussion.)

Why Does the SEC Protect Banks’ Dirty Secrets? - Bowen was the chief underwriter in the Citigroup business unit that bought some $50 billion annually in home mortgages from third parties that were then bundled up and sold as securities to investors the world over. On Nov. 3 he sent an “urgent” e-mail to executives including Robert Rubin, the former U.S. Treasury secretary who was then chairman of the bank’s executive committee, and Gary Crittenden, the chief financial officer, raising concerns about “breakdowns in internal controls and resulting significant but possibly unrecognized financial losses existing within our organization.” Bowen wrote that he had been “agonizing for some time” about the problem, especially since his direct superiors at the bank, whom he had warned repeatedly since he first discovered the problem in mid-2006, had done little or nothing to remedy it. What he had discovered was that 60 percent of the home mortgages that Citigroup had bought from third parties, or $30 billion, were “defective,” meaning that they didn’t meet Citigroup’s underwriting criteria. Nevertheless, they were still packaged up -- defects and all -- and sold as securities. You know where this is going. The Citigroup executives did next to nothing. Rubin, who left the company in January 2009, told the federal Financial Crisis Inquiry Commission on April 8, 2010, that “either I or somebody else sent it to the appropriate people, and I do know factually that that was acted on promptly and actions taken in response to it.” Commission Chairman Phil Angelides asked Rubin to follow up with his commission and explain precisely what actions Citigroup took in response to Bowen’s e-mail. A few months later, Rubin’s attorneys sent a letter stating that the “e-mail was subsequently passed on to the appropriate personnel at Citigroup” and that “Citigroup should be able to provide a description of its response to Mr. Bowen’s concerns.” A Nixonian response if ever there was one.

Yes, Virginia, Sound Regulation and Oversight Pay for Themselves - Yves Smith - Even before the crisis, polls showed that the public overwhelmingly favors regulation to protect ordinary citizens from shoddy products and sharp practices. The spectacle of failure being rewarded during the financial crisis while the rest of us suffered in the resulting economic downdraft has led even people who are cautious about regulation in goods markets to acknowledge that finance is different and needs vigilant oversight. The Massachusetts Senate race provides a reminder. Scott Brown has been playing up the bankster caricature of Elizabeth Warren a a power-mad, business-hating Commie. If anyone bothered checking her calendar during her time as a consultant to the Treasury launching the CFPB, it shows that Warren bent over backwards to meet with bankers and solicit input. And the idea that the sort of regulation that Warren favors is bad for the public (or anyone other than overreaching businessmen) is a stretch (remember, Warren was once a Republican). And of course, this sort of attack serves to reinforce the canard that regulation is bad (as opposed to “bad regulation is bad” just as “bad Scotch is bad”) The fact that Warren took her job as the head of the Congressional Oversight Panel seriously produced a huge win for the public. As Matt Stoller recounts in an article in Salon, the COP under Warren incurred $10.7 million in expenses. One action alone, that of finding that Treasury was letting banks buy back their TARP warrants on the cheap, saved taxpayers over $1 billion. Similarly, while Neil Barofsky’s role at SIGTARP was circumscribed (he could only pursue frauds that were directly related to TARP), he separately saved over a half a billion of taxpayer monies.

Counterparties: More price manipulation by Barclays - With an estimated 4.6 million homes and businesses without electricity across the East Coast, including the vulnerable elderly, it’s hard to imagine a worse time to be accused of manipulating the energy market. That’s where Barclays finds itself, facing a record $470 million fine from the Federal Energy Regulatory Commission. Here are the details from Reuters: The traders are alleged to have manipulated power prices [from late 2006 throught 2008] — driving up or down physical power prices to make money with their financial swap positions. That is alleged to have caused losses for rival power traders of $139 million — and netted the bank gains of $34.9 million. If that sounds familiar, it should. The traders at the heart of the investigation formerly worked at Mirant, which paid $11 million to settle federal charges that it manipulated natural gas markets in 2000. At the same time, Enron’s traders were bragging about causing “Grandma Millie’s” sky-rocketing electricity bills. Trying to move physical power prices so that your swap book benefits is an order of magnitude away from attempting to take power plants offline, but adding “Enron-esque” and “scandal-ridden” to the list of Barclays descriptors must smart. Particularly for the bank’s new law-and-order chairman. . The WSJ’s David Enrich reports that the US is investigating possible violations of the Foreign Corrupt Practices Act. The UK Serious Fraud Office is already pursuing allegations that the bank paid £300 million in advisory fees to the Qataris in order to secure an $7.1 billion investment in Barclays. And in case you missed it, Barclays reported £1.7 billion in profits for the third quarter

Barclays case shocks the energy market - FT.com: The multibillion US electricity market has seen some Hollywood-style action. “It is like that battle scene from Braveheart: hold ... hold ... unleash hell!” That is how one electricity trader at Sempra Energy describes Barclays’ trading style in an instant-message exchange dated February 2007. “That’s funny as hell,” the bank’s trader responds. US regulators weren’t so amused. The Federal Energy Regulatory Commission is seeking a record penalty of $435m and trying to claw back $34.9m in profits from Barclays for allegedly manipulating the electricity market for 655 business days between November 2006 and December 2008. The regulator is also accusing four former traders at the bank of intent to manipulate the price of power. The case – and the dozens of emails and instant messages released by the FERC – shines a light on the obscure US electricity market, a niche corner of the commodities industry in which banks, utilities, grid companies and hedge funds bet billions of dollars in physical and financial transactions. It suggests US commodities regulators, including the FERC and the Commodity Futures Trading Commission, are paying extra attention to the link between the physical and derivatives commodities markets. Whatever the legal outcome of the case, which will take months if not years to reach a conclusion, the emails and instant messages are damaging for Barclays.

More on the derivatives regulation fiasco - The FT published two helpful articles today discussing the effects of the Dodd Frank derivatives regulation. US swaps shake-up set to boost exchanges; Dodd-Frank roils Asia energy derivatives. Here are some comments on these developments: 1. The derivatives clearing platforms continue to be a fiasco. When talking to people in the business who are end-users, you will hear comments like "clearing is such a pain in the ass, it's just not worth trading the product." This is driven by the remaining regulatory uncertainties, operational complexities, increased margin requirements, and high transaction costs. 2. Many are looking for alternatives to OTC derivatives clearing such as using futures (including block futures trades that don't hit the transaction board until the end of the day) or even ETFs (for example some are now using HYG instead of HY CDX for smaller transactions.) 3. The CFTC registration requirements for OTC swaps traders is damaging their business - particularly for energy swaps. 4. The new rules could create a disruption in the energy markets (per FT articles above). As usual, blunt regulation (see discussion) is causing problems for the end users - including participants in the energy markets. What's sad however is that NONE of the products that are expected to be cleared have contributed to the financial crisis. The only major OTC derivatives related disaster in 2008 was AIG (Lehman, Bear, Citi, Wachovia, etc. issues were due to funding, mortgages, etc.). But the types of derivatives that had brought down AIG (structured protection on CDO tranches) will never even end up on a clearing platform. Rate swaps, corporate CDS, energy swaps, etc. have functioned perfectly well during the financial crisis.

Housing Bubble and Fraud - Preet Bharara, Manhattan's U.S. attorney, is a man on a mission. Not satisfied with the historical conviction of former McKinsey managing director Raja Gupta for insider trading, he quickly moved to investigate mortgage fraud. Earlier this month he sued Wells Fargo and last week Bank of America for mortgage fraud. Some people regard these prosecutions as politically motivated. After all, high-profile prosecutions of financial crimes were the launching pad for Rudolph Giuliani's, Eliot Spitzer's, and Andrew Cuomo's political careers. Yet, political ambitions might not the worst of all possible motivations. Suing large corporations and powerful people can be very costly, both in terms of time and reputation. They can hire the best lawyers to fight back and can more easily hurt a prosecutor's career. In fact, the question is not whether Preet Bharara's indictments are politically motivated, but whether the Obama's DOJ lack of indictment activity is. Five years after the beginning of this crisis and millions of mortgage defaults later, American voters are still struggling to understand whether the mortgage crisis was just the unfortunate outcome of a brutal adjustment in house prices or the result of a major bank fraud. Two recent academic papers help us shed some light on this question. The first one (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2021507) tries to assess whether predatory lending was the cause of the large increase in mortgage defaults we experienced in 2007-2010. It does so by exploiting a natural experiment generated by Illinois legislators. In 2006 they introduced mandatory counseling in selected Chicago neighborhoods, to repeal it only 20 weeks after it was introduced. Predatory lending is commonly defined as lending that imposes unfair and abusive loan terms on borrowers. The immediate effect of this mandatory counseling was to discourage almost half of the loans. While many good loans might have been prevented, it is safe to say that probably almost all the predatory ones must have been curtailed. What was the effect on later defaults? The authors find that defaults were reduced by one third. Thus, predatory lending was clearly not the only factor, not even the biggest one in the housing crisis. Yet, it might have been an important contributing factor.

RBC Pulled Into LIBOR Probe -- The investigation into alleged rigging of Libor by a group of international banks has expanded to nine other institutions including Royal Bank of Canada, this country’s biggest lender by assets. The banks have been subpoenaed by state prosecutors in New York and Connecticut, according to the Wall Street Journal, citing sources familiar with the matter. Rina Cortese, a spokeswoman for RBC, declined to comment saying it’s not the bank’s policy to talk about individual investigations. “We are cooperating with regulators. We have determined that our Libor submissions reflected our cost of funds,” Ms. Cortese said.

MF Global Couldn’t Keep Track of Funds - As MF Global Holdings teetered last October, an accountant in its Chicago office got an urgent question from regulators: How much cash did the firm have left? It is supposed to be an easy question for brokerage firms to answer, even in the middle of a crisis. U.S. rules set tight controls on the accounting, oversight and movement of money that belongs to customers or firms themselves. "This will require a significant effort," the MF Global accountant, Matthew Hughey, wrote in an email to seven colleagues at 4:24 a.m. on Oct. 27, 2011. A copy of the email was reviewed by The Wall Street Journal. The reason Mr. Hughey couldn't answer the question for regulators: Employees at MF Global couldn't keep track of exactly how much money it had at any given moment, even before the company began to wobble, according to Mr. Hughey's email. Officials had been trying to fix the problem for months. As regulators and lawmakers plow ahead with investigations that began when MF Global tumbled into bankruptcy a year ago this week, yawning gaps in the New York company's procedures for moving and keeping track of money are getting new attention.

Let Us Now Shed Crocodile Tears for Jon Corzine - Yves Smith - The Wall Street Journal had a bizarre sequence of reports on Jon Corzine. On the 28th, it ran a damning story on MF Global’s controls, or more accurately, the lack thereof: U.S. rules set tight controls on the accounting, oversight and movement of money that belongs to customers or firms themselves… As regulators and lawmakers plow ahead with investigations that began when MF Global tumbled into bankruptcy a year ago this week, yawning gaps in the New York company’s procedures for moving and keeping track of money are getting new attention… Internal documents reviewed by the Journal show that the problems were chronic and deeper than previously disclosed. This is the stunning part, emphasis ours: Some people close to the investigation or who worked at MF Global said the firm failed to shore up internal systems that officials knew were weak. One explanation offered by these people is that MF Global had to prioritize what needed to be fixed first, since it had limited resources and was still overhauling systems in response to a 2008 rogue-trading loss. This is an admission that top officers knew that key systems and controls were deficient. That in turn means that Jon Corzine’s Sarbanes Oxley certification, that internal controls were adequate, was false. Given the scale of the failure, this looks like a slam dunk Sarbox case, and as we’ve further argued in past posts, a successful civil prosecution can serve as the basis for a criminal case. Yet the Journal blandly and uncritically repeats the bromide that Corzine and his CFO Henri Steenkamp have testified before Congress that they “believed” controls were “sound” without highlighting the inconsistency with the new revelation.

How “Brazen” does a Bankster’s Fraud have to be before he’s Prosecuted? By William K. Black I’ll get the obvious out of the way first and then turn in future columns to the aspects of the Department of Justice’s (DOJ) civil suit against Bank of America (B of A)/Countrywide that are vital to understand but are more subtle. The obvious issue arises from the facts that the DOJ alleges that its investigation has found. The complaint and the DOJ press release state that elite financial criminals committed tens of thousands of “brazen” frauds targeting U.S. government funds. We’re on the hook for all the resultant losses because Fannie and Freddie were systemically dangerous institutions (SDIs) that the Bush administration concluded had to have their creditors bailed out to prevent a far graver global systemic crisis. DOJ alleges that the fraud persisted for years, that senior officers were warned that the lending program they designed would cause endemic fraud, that the senior officers knew that B of A was selling billions of dollars of fraudulent loans to Fannie and Freddie by making false representations, that B of A’s senior leadership consciously covered up the information that the loans were commonly fraudulent, that the senior leadership created perverse bonus systems for their junior non-professional employees with the expectation, desire, and actual knowledge that doing so led to the origination (and sale to Fannie and Freddie) of endemically fraudulent loans, and that even when Fannie and Freddie confronted B of A with its violations of its representations and warranties B of A refused to honor it contractual obligation to repurchase the fraudulent loans. DOJ alleges that the frauds persisted for years and continued after B of A purchased Countrywide. The obvious question (not asked by the AP, WSJ, and NYT articles) is: why the DOJ has refused to bring a criminal prosecution of the senior officers who led this “brazen” fraud?

Former TARP regulator tells Moyers: Another banking crash is ‘inevitable’ - Neil Barofsky, the former regulator tasked with policing banker bailouts in the Bush administration’s Troubled Asset Relief Program (TARP), told talk show host Bill Moyers this week that another major banking crash is now “inevitable” because neither of the political parties have the stomach to end “too big to fail.” “This was the government policy created by the architects, Ben Bernanke who is chair of Federal Reserve, Tim Geithner, who was then the president of the New York Fed before becoming Treasury Secretary, and Hank Paulson,” he explained, describing the Bush administration’s actions during the 2008 economic crisis. “Their solution originally was to further concentrate the industry, to make the too big to fail banks bigger.” That’s a policy the Obama administration has mostly continued, placing only modest limits on the debt load financial institutions are allowed carry, but neglecting broader reforms like restoring the long-standing firewall between checking and savings accounts and the big banks’ more risky ventures on Wall Street.

Bond Sales Topping $3 Trillion Nears 2009 Record - Corporate bond sales surged to $3.3 trillion this year, challenging the record in 2009, as investors sought higher-yielding alternatives to government securities and companies took advantage of borrowing costs at all-time lows. General Electric Co. (GE), the biggest maker of power-generation equipment, led issuers this month with a $7 billion bond offering, according to data compiled by Bloomberg. Along with software provider Oracle Corp. (ORCL)’s $5 billion sale, they paced $347 billion of bond issuance in October, a record for the month, and left sales about $116 billion shy of the $3.4 trillion reached by this time three years ago. Policy makers from the U.S. to Europe and Asia reacted to the deepest financial crisis since the Great Depression by pumping unprecedented amounts of money into the global economy and suppressing interest rates at record lows. That’s pushed yields on the safest government debt close to or below zero percent, prompting money managers to take refuge in company debt as default rates run below their historical average.

Junk Bonds Grow More Popular and Turn Even Riskier - Junk bonds are living up to their name again. Companies with junk credit ratings have been increasingly issuing bonds for riskier purposes that could hinder their ability to pay back bondholders. Demand for junk bonds has touched record levels this year as investors reach for their rich yields, a stark contrast to the meager returns available on Treasury securities and money market accounts. But the voracious demand has allowed companies to easily raise money for things that may actually end up weakening them. For most of this year, the bond issuers were at the higher end of the junk credit-rating spectrum, and were using the money to refinance old debt at lower interest rates, thereby solidifying their economic footing. That made many analysts feel more comfortable about the flood of new junk bonds. But in recent weeks, there has been a decline in the average credit rating of the companies issuing junk bonds, to C ratings nearer the bottom of the junk rankings from the BB ratings at the top. And companies have been using more of the proceeds for the sorts of risky projects that were common before the financial crisis and in the go-go days of the 1980s — paying dividends to private equity owners and financing mergers and leveraged buyouts.

The Junk Is Back in Junk Bonds - Junk bonds — debt issued by companies with low credit ratings — are growing junkier by the day, with ever weaker companies issuing bonds for ever riskier purposes. The bonds’ falling quality and rising risk, described recently in The Times by Nathaniel Popper, show gaps in investor protection. They also revive concerns about how private equity owners of companies that issue the bonds are using that money. Demand for junk bonds has soared this year, as both institutional and individual investors have sought higher yields in a near-zero interest rate world. As demand has risen, ever shakier companies have been able to find buyers for their debt, leading to a decline in recent weeks in the average credit rating of junk-bond-issuing companies. At the same time, the reason for issuing junk debt has changed for the worse. For most of this year, companies used the proceeds from junk bonds to refinance high-rate debt, a move that shores up a company’s financial health. But, in recent weeks, more of the proceeds have gone to pay dividends to private equity owners, a move that can weaken a company by increasing its debt load without strengthening its underlying business. As critics of private equity rightly point out, the result is too often job losses and even bankruptcy, while private equity owners are vastly enriched in the process.

Weakness in the U.S. IPO Market - NY Fed - The high valuations achieved by recent social-media- and Internet-related initial public offerings (IPOs) and their disappointing aftermarket performance have rekindled the specter of the dot-com boom and bust of the late 1990s. This post extends the analysis of my 2004 Current Issues article (with Gijoon Hong) that documents a gradual but significant deterioration in the quality of issuing companies since the 1980s, a trend that reached a low point with the bursting of the Internet bubble in 2000. Despite considerable investor interest in recent web startups, the volume of IPO proceeds has remained weak since the 2000 Internet collapse. An important lesson of the boom-and-bust episode is that a viable and well-functioning IPO market must be based on companies with sound fundamentals and business plans. Although there are no signs of another tech bubble, my post shows that IPO companies have remained, on average, weak financially over the 2001-11 period.

If Banks Can’t Overcharge You For Trading, How Can They Afford To Bring You More Overpriced IPOs? - A pretty widespread fact of life is that if it costs you $9 to make a widget and you sell it for $10 then you make $1, and if someone else comes along and starts selling widgets for $9.50, then you have to either sell fewer widgets or sell them for less money or both, and this makes you angry, because you were making $1 per widget and now you are making less and that’s just not the American way. But it happens, often, and you probably get really mad about it and go do things like lobby Congress to ban foreign widgets or whatever. One thing that probably wouldn’t occur to you is to lobby Congress to ban change – as in coins – so that nobody could undercut you by 50 cents. This, it turns out, is because you are not creative. This thing about bringing back fractions in stock prices is not new but it’s rumbling forward and so is Sandy so I guess let’s talk about the fractions? Here is the thing: The push to revert to wider “tick sizes,” as traders call them, comes amid an argument over whether or not decimalization has made markets less welcoming for small companies looking to attract investors to their initial public offerings of stock. Some executives, banks and advisers say that banks do less to drum up investor interest in these shares because of lower profits. As evidence, people in this camp point to the decline in the number of U.S.-listed company IPOs raising less than $50 million. In the late 1990s there were typically more than 100 such IPOs a year, compared with fewer than 10 so far this year, according to Dealogic. If you move away from penny pricing, “investment banks will be able to make enough money trading … to write research and re-create the spark in the engine,”

Fed: Some domestic banks "reported easing standards", Many banks seeing "strengthening of demand" - From the Federal Reserve: The October 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices In the October survey, small fractions of domestic banks, on net, reported easing standards for business lending and some categories of consumer lending over the past three months. Respondents reported little change in residential real estate lending standards on balance. Significant fractions of banks reported a strengthening of demand for commercial real estate loans, residential mortgages, and auto loans, on balance, while demand for most other types of loans was about unchanged. Within consumer lending, modest fractions of respondents continued to report an easing of standards on credit card and auto loans; respondents indicated that their standards on other types of consumer loans were about unchanged. Special questions on lending to and competition from European banks. The October survey also included questions about European banking institutions and their affiliates that have been asked on several recent surveys. Respondents to the domestic and foreign survey again reported that their lending standards to European banks and their affiliates had tightened over the past three months, but the fractions of respondents indicating that they had tightened standards declined significantly between the July and October surveys, on net.

Unofficial Problem Bank list declines to 864 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Oct 26, 2012. (table is sortable by assets, state, etc.) Changes and comments from surferdude808: The FDIC released its actions through September 2012 and closed a bank this week. There were five removals and four additions leaving the Unofficial Problem Bank List with 864 institutions with assets of $330.4 billion. A year ago, the list had 985 institutions with assets of $406.6 billion. For the month, changes included 11 action terminations, four failures, one unassisted merger, and six additions. Overall, it was a quiet month as it was the fewest action terminations since February 2012 and the fewest additions since the publication of the list..CR Note: The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public. (CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.) As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest.

Goldman urges Supreme Court to end mortgage class-action | Reuters: (Reuters) - Goldman Sachs Group Inc (GS.N) has urged the U.S. Supreme Court to throw out a mortgage securities class-action lawsuit that it said could cost Wall Street tens of billions of dollars. The bank is challenging a September 6 decision by the 2nd U.S. Circuit Court of Appeals in New York allowing the lawsuit, which accuses it of misleading investors about the securities' risks. That court let the NECA-IBEW Health & Welfare Fund, which owned some mortgage-backed certificates underwritten by Goldman, sue on behalf of investors in certificates backed by mortgages from the same lenders, but which the fund did not own itself. Circuit Judge Barrington Parker wrote for a three-judge panel that the NECA-IBEW fund could pursue these claims because they "implicated the same set of concerns" as its own. Goldman's lawyers argued that the 2nd Circuit created a direct conflict with the federal appeals court in Boston, which in a similar case involving Japan's Nomura Asset Acceptance Corp, found in January 2011 that a plaintiff could not pursue claims on behalf of a class that it could not bring by itself. The stakes are "difficult to overstate," according to an October 26 brief by Theodore Olson, a partner at Gibson, Dunn & Crutcher and former U.S. solicitor general, who represents Goldman. "In the context of mortgage-backed securities litigation in which this case arises, the decision will effectively increase by tens of billions of dollars the potential liability that financial institutions face in this and similar class actions," he wrote. "Moreover, the new standard threatens to expand the scope of class actions in many other areas of the law."

Fannie Mae Serious Delinquency rate declined in September, Freddie Mac rate increases - Fannie Mae reported that the Single-Family Serious Delinquency rate declined in September to 3.41% from 3.44% August. The serious delinquency rate is down from 4.00% in September last year, and this is the lowest level since March 2009. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%. Freddie Mac reported that the Single-Family serious delinquency rate increased in September to 3.37%, from 3.36% in August. Freddie's rate is down from 3.51% in September 2011. Freddie's serious delinquency rate peaked in February 2010 at 4.20%. These are loans that are "three monthly payments or more past due or in foreclosure". In 2009, Fannie's serious delinquency rate increased faster than Freddie's rate. Since then, Fannie's rate has been falling faster - and now the rates are at about the same level. Although this indicates some progress, the "normal" serious delinquency rate is under 1% - and it looks like it will be several more years until the rates back to normal.

How Fannie Enriches Private Equity Investors at Taxpayer and Homeowner Expense - Corporate welfare queen Fannie Mae has decided to spread their taxpayer provided love, doling out taxpayer subsidized sweetheart deals to a small number of lucky real-estate investors. Let’s examine one of those deals, Fannie Mae’s SFR 2012-1, which includes three groups of properties in Florida. Fannie Mae sold 699 Florida properties, appraised at $81.5 million, for $12.3 million cash to San Diego based Pacifica Companies. In exchange, Pacifica must rent the homes, paying Fannie another $78.1 million from rental proceeds, but during that time Pacifica is allowed to keep a 20-percent management fee plus 10-percent of rental proceeds. If that doesn’t sound like money for nothing, like the song goes, Fannie sweetened it by adding a trigger allowing Pacifica to keep 50-70 percent of rental proceeds, depending upon performance, after Fannie’s been “paid” (read: collected rent) amounting to $49.3 million. Finally, adding insult and injury – to the American taxpayer and the former homeowner – Pacifica can eventually sell the houses and keep the proceeds or use them to pay off the expected rental income stream faster.

Mortgage Price-Gouging Courtesy of the Bailout - ProPublica: Mortgage rates are so low that it may seem like a great time to get a mortgage. For banks, however, it probably is the greatest time ever. The profit margin on the rates that they can charge customers and the price they can earn for selling those mortgages to investors is at a record [1]. This is measured as the "spread," or difference, between mortgage securities yields and mortgage rates.Given that housing prices are beaten up and borrowers must put down bigger cushions than in recent years, it is "the most profitable, safest time ever to be a mortgage bank," says Scott Simon, who is the head of mortgage investing at Pimco. In the old days, there used to be a word for this kind of thing: price gouging. And who is doing the gouging? Mainly, Wells Fargo and JPMorgan Chase. In the third quarter [2], reported in the last several weeks, both banks earned robust profits from the mortgage business. The president of the Federal Reserve Bank of New York, William C. Dudley, vented this frustration [1] in a recent speech, blaming the concentration of mortgage-making power at a few big banks. Mr. Dudley is right. But what he didn't say was that his own institution (the Fed), his former boss (Treasury Secretary Timothy F. Geithner) and the Bush and Obama administrations delivered us this mess.

US housing: After the gold rush: Critics say authorities are pursuing petty crooks but going easy on Wall Street when it comes to mortgage fraud - Last December Mr Perry pleaded guilty to one count of conspiracy to commit mail, bank and wire fraud for his role in a $3.4m mortgage fraud scheme in which he and others acted as “straw buyers” – that is, they falsified loan applications to qualify for mortgages on houses they intended to “flip” at a profit. He is one of more than 2,100 estate agents, mortgage brokers and others arrested nationwide on mortgage fraud charges. In Nevada alone, more than 200 people have been arrested in connection with such fraud since 2008. Such straw-buyer schemes are described by one attorney as having “typified much of what has been wrong in the mortgage industry”. However, they also typify the types of criminal cases the US Department of Justice and the Federal Bureau of Investigation have pursued in the four years following the worst financial crisis since the Depression. Critics say that prosecutors have gone after easy targets – low-level fraudsters – while going easy on Wall Street executives whose banks packaged billions of dollars worth of toxic mortgage securities.

Few housing solutions offered in presidential race - Six out of 10 Nevadans owe more on their mortgages than their homes are worth. In many parts of the country, the housing market is on the rebound, with home values up, inventory tight and new housing construction rebounding. But here and in hotly contested Florida, the damage to the housing market is still painfully visible. Even though President Barack Obama and rival Mitt Romney have logged dozens of hours campaigning in these states, they rarely delve into the housing issue. Neither candidate has made it a centerpiece of his campaign. "Housing is not really a winner of an issue for either candidate," said Jed Kolko, chief economist of the housing website Trulia.com. "Obama doesn't have big policy successes to point to, which he would need as the incumbent, and Romney doesn't have bold new policy proposals." That's because housing is generally not a winning issue, especially with the bulk of the damage confined to a few Sun Belt states, including California and Arizona, which are not in play in this election.

CoreLogic: 57,000 Completed Foreclosures in September - From CoreLogic: CoreLogic® Reports 57,000 Completed Foreclosures in SeptemberCoreLogic ...released its National Foreclosure Report for September that provides monthly data on completed U.S. foreclosures and the overall foreclosure inventory. According to the report, there were 57,000 completed foreclosures in the U.S. in September 2012, down from 83,000 in September 2011 and 59,000 in August 2012. Prior to the decline in the housing market in 2007, completed foreclosures averaged 21,000 per month between 2000 and 2006. Completed foreclosures are an indication of the total number of homes actually lost to foreclosure. Since the financial crisis began in September 2008, there have been approximately 3.9 million completed foreclosures across the country. Approximately 1.4 million homes, or 3.3 percent of all homes with a mortgage, were in the national foreclosure inventory as of September 2012 compared to 1.5 million, or 3.5 percent, in September 2011. Month-over-month, the national foreclosure inventory was down 1.1 percent from August 2012 to September 2012. The foreclosure inventory is the share of all mortgaged homes in any stage of the foreclosure process. Note: The foreclosure inventory reported by CoreLogic is lower than the number reported by LPS of 3.87% of mortgages or 1.9 million in foreclosure.

Credit Access Following a Mortgage Default - FRBSF - Historically, the U.S. mortgage default rate has varied in the range of 0–2% over the economic cycle. However, default rates broke dramatically from this historical pattern in 2006. At the peak of the housing downturn, the aggregate default rate climbed to about 10% of mortgages. In certain geographical markets and for certain types of mortgages, such as loans to subprime borrowers, the rate exceeded 25%. What happened to borrowers who defaulted? Borrowers who default on mortgages return to the mortgage market at extremely slow rates. Only about 10% of borrowers with a prior serious delinquency regain access to the mortgage market within 10 years of their default. Borrowers who terminate mortgages for reasons other than default return to the market about two-and-a-half times faster than those who default. Renewed access to credit takes even longer for subprime borrowers with a serious delinquency on their record.

Ohio Supreme Court rules for homeowners in foreclosure case - The Ohio Supreme Court on Wednesday unanimously ruled that a third-party mortgage company cannot foreclose on a property that it did not have a connection to at the time of the initial complaint. The ruling, considered a victory for homeowners, stemmed from a 2009 situation in which a couple in Xenia, in Southwest Ohio, attempted to sell their home through a short sale after falling behind on mortgage payments, only to be forced into foreclosure by a company that later bought their home at a sheriff's sale. The lender was Legacy Mortgage, which then sold the promissory note and mortgage to Wells Fargo Bank. Schwartzwald lost his job in September 2008 and the couple fell behind in payments. They went into default in January 2009 and in March 2009 Wells Fargo listed the property for a short sale. Within a month the Schwartzwalds were in a contract to sell their home for $259,900. But then another company, Federal Home Loan Mortgage Corporation, filed a complaint for foreclosure even though the corporation did not yet have any entitlement to the property. In May 2009, the corporation was able secure the promissory note and mortgage from Wells Fargo, and a lower court allowed the foreclosure. The corporation then purchased the home at a sheriff's sale. A state appeals court upheld the lower court's ruling. The Ohio Supreme Court on Wednesday, however, overturned the lower court's ruling and dismissed the foreclosure decree, saying the law clearly requires an entity to have legal standing to a property when a foreclosure complaint is first filed.

Principal relief for stressed homeowners - A limited number of underwater homeowners in California will soon be able to get principal reductions of up to $100,000 apiece on Fannie Mae and Freddie Mac loans through the federally funded Keep Your Home California program.... in mid-September, Fannie and Freddie told servicers they could immediately begin accepting money for principal reductions from programs financed by the U.S. Treasury's Hardest Hit Fund, including Keep Your Home California. Fannie's and Freddie's willingness to accept money from Hardest Hit Funds does not signal a change of heart on the part of their regulator, the Federal Housing Finance Agency. ... Fannie Mae spokesman Andrew Wilson says, "This in fact for us is not a principal reduction. It's a principal payment. It's as if your grandmother wanted to give you $50,000 to apply to your mortgage. In this case, the grandmother, as it were, was the Hardest Hit Fund." The fund was set up in 2010 to provide $17 billion in homeowner assistance to 18 states hardest hit by the housing crisis. ... The California Housing Finance Agency set up four programs under the Keep Your Home name to distribute California's share - $1.9 billion. It allocated $772 million to principal reduction ...

Borrowers hit by Sandy may get relief — Government-seized housing giants Fannie Mae and Freddie Mac on Tuesday outlined relief options for borrowers with homes damaged or destroyed by hurricane Sandy. “We understand the disruption that a storm such as Sandy can have on people’s lives, and we’ve made it easy for our servicers to offer relief to those who need it,” said Leslie Peeler, a vice president at Fannie Mae. Specifically, Fannie Mae said mortgage servicers for mortgages owned by the Fannie are permitted to temporarily suspend or reduce a homeowner’s mortgage payments for up to ninety days in certain circumstances when a natural disaster, such as hurricane Sandy, has occurred. Fannie said borrowers can reach out to mortgage servicers for this kind of assistance. Similarly, Freddie Mac has authorized mortgage servicers to provide relief options to borrowers with mortgages owned or guaranteed by Freddie Mac. For example, servicers can help borrowers with Freddie Mac owned homes by suspending foreclosure and eviction proceedings for up to 12 months or waive penalties or late fees against borrowers with disaster-damaged homes.

Are Refis Contractionary? - Brad DeLong got me thinking a few days ago, and not in a good way, when he quoted the brilliant Cardiff Garcia: Thus far the surging mortgage origination business at banks has been concentrated in refinancing rather than purchases. The refi boom is great but can only last so long, as Dudley writes, and from a macroeconomic perspective has less of an impact than a housing purchase and construction rebound... I’m thinking that rather understates the case. There are at least two of us on this blog who have benefitted from recent refis. (I won’t out the other one, save to say they got better terms than I did.) In my case, the net savings in payments was about $700/month—not exactly chump change, unless you’re Tagg Romney. But let’s follow the flows here, pretending that all transactions are with two banks for reasons that will be clear. My refinancing means that Bank A receives a lump-sum payout of the balance of my mortgage. But then they have to put that money to work—and they are not going to receive my old interest rate on those replacement loans (if any). Bank B is receiving current market rates on the refi. So it’s new lending to them. But that’s neutralized on the supply, replaced by Bank A having “freed up” my old loan.

Case-Shiller: House Prices increased 2.0% year-over-year in August - S&P/Case-Shiller released the monthly Home Price Indices for July (a 3 month average of June, July and August). This release includes prices for 20 individual cities, and two composite indices (for 10 cities and 20 cities). From S&P: Home Prices Continued to Rise in August 2012 According to the S&P/Case-Shiller Home Price Indices: Data through August 2012, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, showed average home prices increased by 0.9% for both the 10- and 20-City Composites in August versus July 2012. Nineteen of the 20 cities and both Composites posted positive monthly gains in August; Seattle was the only exception where prices declined 0.1% over the month. The 10- and 20-City Composites recorded annual returns of +1.3% and +2.0% in August 2012 – an improvement over the +0.6% and +1.2% respective annual rates posted for July 2012. Eighteen of the 20 cities and both Composites posted better annual returns in August compared to July 2012. Annual returns for Dallas remained unchanged at +3.6% and Chicago saw its annual return worsen from -1.0% in July to 1.6% in August 2012. Note: Case-Shiller reports NSA, I use the SA data. The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000). The Composite 10 index is off 31.5% from the peak, and up 0.4% in August (SA). The Composite 10 is up 4.0% from the post bubble low set in March (SA). The Composite 20 index is off 30.92% from the peak, and up 0.5% (SA) in August. The Composite 20 is up 4.4% from the post-bubble low set in March (SA). The second graph shows the Year over year change in both indices. The Composite 10 SA is up 1.3% compared to August 2011. The Composite 20 SA is up 2.0% compared to August 2011. This was the third consecutive month with a year-over-year gain since 2010 (when the tax credit boosted prices temporarily). The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

House Price Comments, Real House Prices, Price-to-Rent Ratio - Case-Shiller reported the third consecutive year-over-year (YoY) gain in their house price indexes since 2010 - and the increase back in 2010 was related to the housing tax credit. Excluding the tax credit, the previous YoY increase was back in 2006. The YoY increase in August suggests that house prices probably bottomed earlier this year (the YoY change lags the turning point for prices). The following table shows the year-over-year increase since the beginning of the year.Here is another update to a few graphs: Case-Shiller, CoreLogic and others report nominal house prices, and it is also useful to look at house prices in real terms (adjusted for inflation) and as a price-to-rent ratio. Real prices, and the price-to-rent ratio, are back to late 1999 to 2000 levels depending on the index. The first graph shows the quarterly Case-Shiller National Index SA (through Q2 2012), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through August) in nominal terms as reported. In nominal terms, the Case-Shiller National index (SA) is back to Q1 2003 levels (and also back up to Q4 2010), and the Case-Shiller Composite 20 Index (SA) is back to August 2003 levels, and the CoreLogic index (NSA) is back to December 2003. The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices. In real terms, the National index is back to mid-1999 levels, the Composite 20 index is back to June 2000, and the CoreLogic index back to February 2001.

How to increase home prices in the face of stagnant household incomes - It is easy to get swept into the momentum of the housing market. The Federal Reserve has managed to push interest rates to historically low levels creating additional buying power for US households. As we enter the slower fall and winter selling season, there is unlikely to be any major changes until 2013 as the election year concludes. We do face major challenges ahead. This current momentum in housing isn’t being caused by flush state budgets or solid wage growth. No, this is being caused by low inventory, big investors crowding out households, and a concerted effort to push mortgage rates lower. If you simply follow the herd, you would think that prices are now near peak levels again (or soon will be) and household incomes are hitting record levels. Let us examine where things stand today deep in 2012.

Update: House Price Seasonality - The Not Seasonally Adjusted (NSA) house price indexes will show month-to-month declines soon. This will not be a sign of impending doom - or another collapse in house prices - it is just the normal seasonal pattern. Even in normal times house prices tend to be stronger in the spring and early summer, then in the fall and winter. Currently there is a stronger than normal seasonal pattern because conventional sales are following the normal pattern (more sales in the spring and summer), but distressed sales (foreclosures and short sales) happen all year. So distressed sales have a larger negative impact on prices in the fall and winter. In the coming months, the key will be to watch the year-over-year change in house prices and to compare to the NSA lows in early 2012. I think house prices have already bottomed, and will be up slightly year-over-year when prices reach the usual seasonal bottom in early 2013.This graph shows the month-to-month change in the CoreLogic and NSA Case-Shiller Composite 20 index over the last several years (both through August). Right now it looks like CoreLogic will turn negative in the September report (CoreLogic is 3 month weighted average, with the most recent month weighted the most). Case-Shiller NSA will probably turn negative month-to-month in the October report (also a three month average, but not weighted). The second graph shows the seasonal factors for the Case-Shiller composite 20 index. The factors started to change near the peak of the bubble, and really increased during the bust. (I was one of several people to question this change in the seasonal factor - and this lead to Case-Shiller reporting the NSA numbers).

How Hurricane Sandy's Aftermath Will Affect The Housing Market's Recovery - Forbes: Hurricane Sandy’s immediate impact on real estate in the hardest hit Northeastern neighborhoods is already painfully evident, from New Jersey shore houses completely swept away by the sea to entire neighborhoods like Queens’ Breezy Point tragically leveled to the ground. But this latest natural disaster won’t just affect certain ZIP codes, it will weigh on America’s housing market as a whole.In the short-term the storm will stifle new housing starts. This will in part be due to seasonality, since new homebuilding tends to pause in the winter months in the Northeast, and in part be due to the fact that many of decimated coastal properties in places like the Jersey Shore tend to be vacation homes and as such, will not likely be considered immediate priorities in terms of repair. New home starts, like sales, will likely rebound in early spring to levels slightly higher than before the storm as owners start to finally rebuild those properties. “I think there is potential for people in the foreclosure process to now have less incentive to fight foreclosure on a home if it has been damaged,” says Blomquist. In other words, some distressed homeowners may simply walk away from their preforeclosures altogether rather than try and work out a short sale or other such deal. With bank-owned homes, the question that arises is whether lenders will choose to pour money into renovations for damaged properties, especially since those REOs already represent non-performing assets. New Jersey and New York have two of the slowest judicial foreclosure processes in the country. New Jersey has experienced 100%-plus increases in foreclosure activity this year, according to RealtyTrac, as lenders finally began processing foreclosures stalled by 2010′s robo-signing scandal. New York state has seen similar activity increases this year. RealtyTrac expects Sandy’s impact will cause a temporary pullback in the number of foreclosure documents filed in both of these states.

HVS: Q3 Homeownership and Vacancy Rates - The Census Bureau released the Housing Vacancies and Homeownership report for Q3 2012 this morning. This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates. However, based on the initial evaluation, it appears the vacancy rates are too high. It might show the trend, but I wouldn't rely on the absolute numbers. My understanding is the Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply, or rely on the homeownership rate, except as a guide to the trend.The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate was unchanged from Q2 at 65.5%, and down from 66.3% in Q3 2011. I'd put more weight on the decennial Census numbers and that suggests the actual homeownership rate is probably in the 64% to 65% range. The HVS homeowner vacancy rate declined to 1.9% from 2.1% in Q2. This is the lowest level since 2005 for this report. The homeowner vacancy rate has peaked and is now declining, although it isn't really clear what this means. Are these homes becoming rentals? Anyway - once again - this probably shows that the trend is down, but I wouldn't rely on the absolute numbers. The rental vacancy rate was unchanged from Q2 at 8.6%, and down from 9.8% in Q3 2011

Wells Fargo raises Housing Forecasts for 2013 and 2014 - Near the end of the year, I collect housing forecasts from a number of analysts. From Wells Fargo: We have raised our forecast for new home sales and housing starts in 2013 and 2014 due to recent reports from homebuilders, strong gains in building permits and starts, record low new home inventories, and the Fed’s stated intentions to purchase large quantities of mortgage-backed securities on an ongoing basis. ...[G]iven the strong gain in permits, which are running slightly ahead of starts, the gain in the Wells Fargo/NAHB Homebuilders’ Index and robust orders data from several large homebuilders, we raised our expectations for 2013 and 2014 to 990,000 and 1.17 million homes, respectively. Wells Fargo is now forecasting total starts of 990 thousand in 2013, and 1.17 million in 2014 (from around 770 thousand in 2012). They are forecasting single family starts of 680 thousand in 2013, and 820 thousand in 2014 (around 530 thousand this year). Their forecast for new home sales is 465 thousand in 2013, and 530 thousand in 2014 (from 370 thousand this year). That is an increase of around 25%+ next year, and an additional 15% to 20% in 2014.

There was only a gain of .3% in the 10 years between 2000 and 2010, but a gain of 1.6% in the next two years. That small 1.6% increase represents a decrease in demand of 1.216 million homes. However, those survey results are for three generations and thus do not include all the kids graduating from college, with no job, and moving back home. Boomerang kids with no jobs returning home has an even greater impact on housing demand. CNN Living discusses the "boomerang" effect in College grads and their families learn to live together. More than half of college graduates move back home, sociologist Katherine Newman wrote in her book, "The Accordion Family: Boomerang Kids, Anxious Parents, and the Private Toll of Global Competition," based on surveys conducted worldwide.

Construction Spending increased in September - Three key construction spending themes: • Private residential construction spending is still very low, but increasing. Residential construction declined sharply for four years following the peak of the housing bubble, and then move mostly sideways for another three years. • Private non-residential construction spending picked up last year mostly due to energy spending (power and electric), but spending on office buildings, hotels and malls is still very low. • Public construction spending is down 4% year-over-year and has been declining for several years. The Census Bureau reported that overall construction spending increased in September: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during September 2012 was estimated at a seasonally adjusted annual rate of $851.6 billion, 0.6 percent above the revised August estimate of $846.2 billion. The September figure is 7.8 percent above the September 2011 estimate of $790.3 billion. Private construction spending increased and public spending declined: Spending on private construction was at a seasonally adjusted annual rate of $580.5 billion, 1.3 percent above the revised August estimate of $572.8 billion. ... In September, the estimated seasonally adjusted annual rate of public construction spending was $271.1 billion, 0.8 percent below the revised August estimate of $273.4 billion. This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

For Builders, the Storm Is Good for Business - Bad news for hurricane-ravaged homeowners is good news for at least one contingent: construction companies and the army of workers they plan to hire, many of whom have been idled and ailing from the housing bust for nearly half a decade.Two days into the destruction from Hurricane Sandy, phones were ringing nonstop at Garden State Public Adjusters in Marlton, N.J., ProStar Residential Disaster Cleanup in Milford, Conn., and other businesses along the Eastern Seaboard. Construction crews cannot get into many of the affected areas yet, because of flooded streets, detours and debris. Even so, customers were lining up, begging for help to pluck branches out of windows, suck water from basements and living rooms, and rebuild damaged roofs and homes. It is an exercise many contractors had been through before. “I always look forward to a natural disaster,” said Doug Palmieri, owner of Palmieri Construction in Middlefield, Conn. “The last two storms we had around here, the snow we had included, helped out the contracting business quite a bit.” Construction companies and insurance adjusters that are newer or less known have begun circling waterlogged neighborhoods in their cars and trucks and distributing fliers, handshakes and condolences. “I drove around with my truck and a couple people stopped me and asked me for a business card,” said Mayara Goncalves, owner of Queiroga Construction in Bridgeport, Conn. “Unfortunately for everyone else, it’s going to be good for us.”

The Obligatory Hurricane Price Gouging Post... It seems like two common themes come up in economics every time there is a natural disaster. One is the broken window fallacy, or the notion that disasters are somehow good for the economy. (While they do stimulate production in the short run, an economy would still be better off not having a bunch of stuff get ruined and having reseources devoted to growth rather than replacement.) The other is the concept of price gouging, or raising prices in response to increased product demand as a result of crisis situations. The non-economist consensus seems to be that price gouging is bad, as evidenced by the fact that it's illegal in many jurisdictions, but economists are on a mission to (rightly, in some ways) make the case for the benefits of such a practice. Matt Yglesias presents a well-reasoned analysis over at Slate, for example. In addition, I made a handy little primer on the economics of price gouging to help you work through your logic.

Personal Income increased 0.4% in September, Spending increased 0.8% - The BEA released the Personal Income and Outlays report for September: Personal income increased $48.1 billion, or 0.4 percent ... in September, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $87.9 billion, or 0.8 percent. Real PCE -- PCE adjusted to remove price changes -- increased 0.4 percent in September, compared with an increase of 0.1 percent in August. ... The price index for PCE increased 0.4 percent in September, the same increase as in August. The PCE price index, excluding food and energy, increased 0.1 percent in September, the same increase as in August. Personal saving -- DPI less personal outlays -- was $395.0 billion in September, compared with $445.1 billion in August. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 3.3 percent in September, compared with 3.7 percent in August. The following graph shows real Personal Consumption Expenditures (PCE) through September (2005 dollars). Note that the y-axis doesn't start at zero to better show the change. This graph shows real PCE by month for the last few years. The dashed red lines are the quarterly levels for real PCE. The September pickup in PCE is clear. A key point is the PCE price index has only increased 1.7% over the last year, and core PCE is up only 1.7%. In August, core PCE increased at a 1.4% annualized rate.

Real Disposable Income Per Capita: Second Month of Contraction - Earlier this morning I posted my monthly update of the year-over-year change in the Bureau of Economic Analysis (BEA) Personal Consumption Expenditures (PCE) price index since 2000. Now let's take a look at a major component of today's PCE report for an update on a key driver of the U.S. economy: "Real" Disposable Income Per Capita. The recent trend is not encouraging. Adjusted for inflation, per-capita disposable incomes had been struggling for the past two years and are currently at about the level first achieved in February of 2007. Most of 2011 saw a slow decline in incomes, a trend that began reversing in November of last year. Income growth continued for eight consecutive months. However, in August real DPI per capita growth went negative at -0.34% month-over-month and slipped further in September at -0.9% MoM.The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. For a more natural comparison, let's compare the nominal and real growth in per capita disposable income since 2000. Nominal disposable income is up 50.5% since then. But the real purchasing power of those dollars is up a mere 14.7%. Let's take one more look at real DPI per capita, this time focusing on the year-over-year percent change since the beginning of this monthly series in 1959. I've highlighted the value for the months when recessions start to help us evaluate the recession risk for the current level.

Personal Incomes Offset By Rise In Food & Energy: The Bureau Of Economic Analysis reported that Personal Incomes in September advanced 0.4 percent from August which had increased by only 0.1 percent. More importantly, wages &amp; salaries gained 0.3 percent tacking onto the 0.1 percent increase in August. However, digging down into the report revealed some interesting issues. The chart below shows the changes to personal income broken down by major subcategories. The most notable change from last month's report on personal incomes is that is that Government Social Benefits (welfare) jumped from a -1.8 billion dollar decrease in August to an increase of 12.6 billion dollars in September. This increase in social benefits accounted for more than 26% of the latest increase in personal incomes. Also, interesting is that personal dividend income rose less in September than August, presumably from stock liquidations, while personal interest income declined by 12.1 billion dollars again in September. The surge in social benefits is concerning. In the latest data more than 585,000 individuals piled onto the disability rolls. Since July of 2010 the number of individuals claiming disability has risen by a whopping 2,776,000 individuals. What is most interesting about the recent trend of surging disability claims is that it began to occur almost exactly 2 years post the start of the financial crisis - which is when the those individuals depending saw their 99 weeks of extended unemployment insurance run out. The dependency on government support for personal income is not limited to just disability insurance claims. It runs the entire gamut of the social welfare safety net. While the current Administration may tout that the economy is improving a quick look at the percentage of personal incomes that is comprised of social benefits tells a different story. In the latest month that ratio grew to 22.76% which is the highest level on record. The problem, of course, is that dependency on social welfare does not lead to sustainable economic prosperity since it is just a recycling of tax dollars.

Vital Signs Chart: Uptick in Disposable Income -- Americans’ spending power is rising. Real disposable personal income — which is the amount remaining after taxes and adjustments for inflation — climbed by 1.9% in September from a year ago. Inflation has been subdued while workers’ earnings are slowly rising, giving consumers a bit more money to spend. That could give a lift to holiday sales in months ahead.

Consumer spending growth back to pre-bubble trend; significant risks to the downside remain - Consumer spending increase in the US was today's big economic story, with some viewing the increase as yet another sign of improving US economy. LA Times: - Consumer spending rose 0.8% in September, the third straight monthly gain and the biggest increase since February, the Commerce Department said Monday. Personal consumption expenditures increased $87.9 billion last month after increasing a revised $59.9 billion, or 0.5%, in August. Consumer spending has been up each month since coming in flat in June following a decrease of 0.2% the month before. September's figure came in above analyst expectations of an increase of 0.6%. "This means the fiscal cliff is not worrying consumers at this point like it is the business sector," Perhaps. But this one deserves a slightly deeper look. Here are some reasons it may be a bit early to celebrate a revival in US consumer spending. The spending increase came at the expense of declining savings rate. Personal income grew by 0.4%, which means that the rest of the increase in spending had to come from declines in savings or expanding credit. We know that consumer credit remains flat except for growth in student loans (see discussion). That leaves savings, which indeed declined in September (chart below).

Consumer spending picks up, but savings a worry (Reuters) - Consumer spending rose solidly in September, putting the economy on a firmer footing heading into the fourth quarter even though households had to pull back on saving to fund purchases. The Commerce Department said on Monday that consumer spending rose 0.8 percent, the largest increase since February, after an unrevised 0.5 percent gain in August. Spending accounts for about 70 percent of U.S. economic activity and last month's increase offered a strong hand off from the July-September period to the current quarter. The rise beat economist's expectations for a 0.6 percent increase last month. When adjusted for inflation, consumer spending rose 0.4 percent after edging up 0.1 percent in August. Bond and currency markets showed little reaction, while the U.S. stock market was closed as New York braced for a hit from Hurricane Sandy. The spending figures were incorporated into last Friday's report on third-quarter gross domestic product. Consumer spending increased at a 2 percent annual pace during the quarter after rising at a 1.5 percent rate in the prior period.

Savings Rate Plunges To Lowest In One Year As US Consumer Once Again Tapped Out - Today's personal income and spending report for the month of September was just the latest datapoint confirming that the US consumer is once again massively cash-strapped and is eating, literally, into their savings. While Personal Income rose at the expected pace of 0.4%, Spending in the last month came well above expectations of 0.6%, printing at 0.8%, which meant that on a net basis Consumers, always hopeful, outspent themselves by a margin of 0.4%. This meant that the savings rate declined from 3.7% in August to a tiny 3.3% in September. This was the lowest Savings print in 2012, and higher only compared to last November's 3.2%, which in turn was the lowest print since the start of the second great depression. In other words, overeager consumers saw their nominal incomes increase... and decided to outspend said rise at double the rate of increase! At this pace, by the time Thanksgiving rolls out, US consumers will have no savings at all left to tap and living will be strictly a month to month activity. But wait, it gets worse. As the second chart below shows, the real story was that of the Real, not Nominal, Disposable Income, adjusted for the cost of living, which declined for the second consecutive month, and shows that the peak this year took place in July, having declined consistently ever since. In other words, even real incomes are now consistently declining, spending aside.

Analysis: Consumers Spend More but Save Less -- Joel Naroff, president of Naroff Economic Advisors, talks with Jim Chesko about data showing that consumer spending jumped a better-than-expected 0.8% last month, while personal income rose 0.4%.

September Consumer Confidence Surprises to the Upside - The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through October 18. The 72.2 reading was fractionally above the consensus estimate of 72.0 reported by Briefing.com. This is an increase from last month's 68.4, which is a downward revision from the Conference Board's preliminary report of 70.3. Here is an excerpt from the Conference Board report. "The Consumer Confidence Index increased again in October and is now at its highest level this year. Consumers were considerably more positive in their assessment of current conditions, with improvements in the job market as the major driver. Consumers were modestly more upbeat about their financial situation and the short-term economic outlook, and appear to be in better spirits approaching the holiday season." Consumers' assessment of current conditions improved in October. Those claiming business conditions are "good" rose to 16.5 percent from 15.3 percent, while those saying business conditions are "bad" edged down to 33.1 percent from 33.8 percent. Consumers' appraisal of the labor market was also more positive. Those stating jobs are "plentiful" increased to 10.3 percent from 8.1 percent, while those claiming jobs are "hard to get" declined to 39.4 percent from 40.7 percent. The table here shows the average consumer confidence levels for each of the five recessions during the history of this monthly data series, which dates from June 1977. The chart below is another attempt to evaluate the historical context for this index as a coincident indicator of the economy.

Restaurant Performance Index declined in September - From the National Restaurant Association: Restaurant Performance Index Declined in September Due to Softer Sales, TrafficThe RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.4 in September, down 0.3 percent from August. Despite the decline, September represented the 11th consecutive month that the RPI stood above 100, which signifies continued expansion in the index of key industry indicators. The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 99.9 in September – down 0.7 percent from a level of 100.6 in August. Although same-store sales remained positive in September, the softness in the labor and customer traffic indicators outweighed the performance, which led to a Current Situation Index reading below 100 for the second time in the last three months.

Weekly Gasoline Update: More Major Price Declines - Here is my weekly gasoline chart update from the Energy Information Administration (EIA) data. Gasoline prices at the pump eased dramatically for the second week. Rounded to the penny, the average for Regular dropped 12 cents and Premium 11 cents. Regular is up 34 and Premium 37 cents from their interim weekly lows in the December 19, 2011 EIA report. This comes on top of 12 and 13-cent declines the previous week. As I write this, GasBuddy.com shows three states (Hawaii, Alaska and California) with the average price of gasoline above $4, unchanged from last week. is $3.896 in New York, which rounds to $3.90.

Gas stations scramble in Sandy's aftermath - Nov 2 - There's plenty of gasoline in the Northeast — just not at gas stations. In parts of New York and New Jersey, drivers lined up Thursday for hours at gas stations that were struggling to stay supplied. The power outages and flooding caused by Superstorm Sandy have forced many gas stations to close and disrupted the flow of fuel from refineries to those stations that are open. At the same time, millions of gallons of gasoline are sitting at the ready in storage tanks, pipelines and tankers that can't unload their cargoes.Superstorm Sandy found a host of ways to cripple the region's energy infrastructure. Its winds knocked down power lines and its floods swamped electrical substations that send power to entire neighborhoods. It also mangled ports that accept fuel tankers and flooded underground equipment that sends fuel through pipelines. Without power, fuel terminals can't pump gasoline onto tanker trucks, and gas stations can't pump fuel into customers' cars.The Energy Department reported Thursday that 13 of the region's 33 fuel terminals were closed. Sections of two major pipelines that serve the area — the Colonial Pipeline and the Buckeye Pipeline — were also closed. Thousands of gas stations in New Jersey and Long Island were closed because of a lack of power. AAA estimates that 60 percent of the stations in New Jersey are shut along with up to 70 percent of the stations in Long Island.

Should gas prices be soaring? - With much critical infrastructure still out, many gas stations don’t have electricity to pump gas, and most of the rest — at least in New York and New Jersey — have sold out, as people filled up not only their cars but any other vessels they could find. Gasoline is precious right now: it powers generators which pump out flooded buildings, as well as powering the one form of transportation which is capable of getting stuff from Brooklyn or New Jersey into Manhattan. As for when new supplies might arrive, that’s extremely vague, but the consensus seems to be Saturday. There’s something self-fulfilling about gas shortages: they’re the crisis equivalent of a bank run. So long as everybody just goes about their day in a normal manner, refilling their tank only when they get low, everything goes smoothly. But when people start thinking that there might not be enough to go around, everybody panics and rushes to the stations: while shortages in New Jersey have real Sandy-related causes, shortages in places like Westchester are essentially the product of self-fulfilling fears. The standard econowonk response to such things (see e.g. Yglesias, or for that matter Uber, which has reverted to “surge pricing”) is that if the market were just left to its own devices, none of this would happen. Prices fluctuate in response to changes in supply and demand, so when supply goes down and demand goes up, it’s only natural that they should rise to the point at which demand starts falling off and the two finally meet again. It doesn’t help matters that such arguments tend to come from the kind of people who can afford to pay extra for their essentials. Crises always hit the poor worse than the rich, even when prices don’t rise: in my own NYC neighborhood, for instance, there is tragic human suffering right now, even as I have a warm and comfy office to go to, a group of rich friends with spare rooms, and enough money to pay for a hotel or Airbnb room should I need it.

Post-Sandy Price Gouging: Economically Sound, Ethically Dubious - In capitalist society, after all, prices aren’t set according to moral rules, or by fiat. To oversimplify a bit, merchants charge whatever they can get away with charging (and that won’t convince their customers to desert them for a cheaper competitor). In the wake of a disaster, with supply limited and demand (for everything from gas to transportation to flashlight batteries) high, prices are supposed to rise. That’s the invisible hand at work, baby! And so we’ve seen a very strange debate take place in the media in recent days. Strange, in that a seemingly unlikely coalition of writers on economic subjects have come out swinging – in defense of price gouging. It’s not surprising to see writers with a conservative or libertarian bent take this stance. Libertarian TV personality John Stossel has penned a veritable paean to price gouging for Fox News; a Wall Street Journal op-ed invites us to “hug a price gouger” today. But the gougers have also found a seemingly unlikely defender in the form of Matthew Yglesias, the lefty-liberal business and economics correspondent for Slate. In a post called The Case for Price Gouging, Yglesias laid out the basic economic logic for letting supply and demand work its magic unfettered by legal or moral restrictions:Letting merchants raise prices if they think customers will be willing to pay more isn’t a concession to greed. Rather, it creates much-needed incentives for people to think harder about what they really need and appropriately rewards vendors who manage their inventories well.

U.S. Light Vehicle Sales at 14.3 million annual rate in October - Based on an estimate from Autodata Corp, light vehicle sales were at a 14.29 million SAAR in October. That is up 8% from October 2011, and down 4% from the sales rate last month. This was below the consensus forecast of 14.9 million SAAR (seasonally adjusted annual rate), however sales were impacted by Hurricane Sandy at the end of October, and sales will probably bounce back quickly. This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for October (red, light vehicle sales of 14.29 million SAAR from Autodata Corp). Sales have averaged a 14.24 million annual sales rate through the first ten months of 2012, up from 12.6 million rate for the same period of 2011. Last year sales were depressed for several months (May through August) due to supply chain issues related to the tsunami in Japan. By September 2011, the supply chain issues were mostly resolved, and this year-over-year increase for October is significant. The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Dallas Fed: Regional Manufacturing Activity expands slowly in October - From the Dallas Fed: Texas Manufacturing Activity Expands but at a Slower PaceTexas factory activity increased in October, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, dipped from 10 to 7.9, indicating slightly slower growth. Most other measures of current manufacturing activity also suggested growth in October, although new orders declined. The capacity utilization index edged up from 9.3 to 11.4, with more than one-quarter of manufacturers noting an increase. The shipments index held steady at 4.7, suggesting shipments rose at about the same pace as in September. The new orders index fell from 5.3 to –4.5, reaching its lowest level this year and indicating a decrease in demand. Perceptions of general business conditions improved slightly in October. The general business activity index rose to 1.8, registering its first positive reading since June. The employment index was 5.2 in October, largely unchanged from last month but well below the higher levels seen earlier in the year. About 15 percent of firms reported hiring new workers, while 10 percent reported layoffs. The hours worked index fell back into negative territory with a reading of –5.9, down from 2.8 in September.This was at expectations of a reading of 2 for the general business activity index. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Chicago PMI: Activity "Idled" - From the Chicago ISM: October 2012: The Chicago Purchasing Managers reported October's Chicago Business Barometer idled, up just 0.2 to a still contractionary 49.9. Business Activity measures reflected weakness in five of seven indexes, most notably as the rate of expansion in Production and Employment slowed while New Orders stalled near neutral and Order Backlogs remained in contraction. EMPLOYMENT: 33 month low; INVENTORIES: slipped into contraction; PRICES PAID: inflation slowed a bit;

New orders improved slightly from 47.4 to 50.6 in October. Employment was at 50.3, down from 52.0 in September. This was below expectations of a reading of 51.0.

Chicago PMI Misses After Early Leak, Contracts; Employment At 33 Month Low - Half an hour ago, MarketNews released an errant PR in which it indicated that the Chicago PMI missed, coming at 49.9, or well below expectations of a 51.0 print. A few minutes ago MarketNews officially broke the Chicago PMI embargo early, and the early leak was confirmed, with the October PMI printing indeed at 49.9, a modest increase from 49.7 in September, but missing expectations for the third month in a row. And once again the headline belied how ugly the underlying data was, which as even MNI explained, saw the employment index slide to 50.3 from 52.0, and just barely above contraction. Either way, this was the lowest print in 33 months. Surely this will be enough for another massive NFP beat on Friday.

ISM Manufacturing index increased slightly in October to 51.7 - The ISM manufacturing index indicated expansion in October. PMI was at 51.7% in October, up from 51.5% in September. The employment index was at 52.1%, down from 54.7%, and the new orders index was at 54.2%, up from 52.3%. From the Institute for Supply Management: October 2012 Manufacturing ISM Report On Business®Economic activity in the manufacturing sector expanded in October for the second consecutive month following three months of slight contraction, and the overall economy grew for the 41st consecutive month, "The PMI™ registered 51.7 percent, an increase of 0.2 percentage point from September's reading of 51.5 percent, indicating growth in manufacturing at a slightly faster rate. The New Orders Index registered 54.2 percent, an increase of 1.9 percentage points from September, indicating growth in new orders for the second consecutive month. The Production Index registered 52.4 percent, an increase of 2.9 percentage points, indicating growth in production following two months of contraction. The Employment Index registered 52.1 percent, a decrease of 2.6 percentage points, and the Prices Index registered 55 percent, reflecting a decrease of 3 percentage points. Comments from the panel this month reflect continued concern over a fragile global economy and soft orders across several manufacturing sectors." Here is a long term graph of the ISM manufacturing index. This was slightly above expectations of 51.0% and suggests manufacturing expanded in October.

ISM Manufacturing PMI is 51.7% for October 2012 - The October 2012 ISM Manufacturing Survey PMI increased, 0.2 percentage points, to 51.7% and and is the second month for expansion. Officially manufacturing expanded at a faster rate, yet the low percentage change implies manufacturing is really holding on. New Orders increased 1.9 percentage points, to 54.2%. New Orders inflection point, where expansion turns into contraction, is not 50%, it is 52.3%, so new orders is really moderate. From the ISM: A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders. The Census reported manufactured durable goods new orders increased 9.9% in September where factory orders, or all of manufacturing data, will be out tomorrow. The ISM claims the Census and their survey are consistent with each other. To wit, below is a graph of manufacturing new orders percent change from one year ago (blue, scale on right), against ISM's manufacturing new orders index (maroon, scale on left) to the last release data available for the Census manufacturing statistics. Here we do see a consistent pattern between the two. The ISM gives a descending ordered list of industry sectors whose new orders increased and this month there are only five sectors which showed increases. The five industries reporting growth in new orders in October are: Furniture & Related Products; Food, Beverage & Tobacco Products; Paper Products; Computer & Electronic Products; and Miscellaneous Manufacturing. The eight industries reporting a decrease in new orders during October — listed in order — are: Primary Metals; Wood Products; Machinery; Electrical Equipment, Appliances & Components; Transportation Equipment; Chemical Products; Nonmetallic Mineral Products; and Apparel, Leather & Allied Products.

ISM Manufacturing Business Activity Index: Second Month of Expansion - Today the Institute for Supply Management published its October Manufacturing Report. Today's headline PMI at 51.7 percent is showing expansion for the second month after three months of contraction. The Briefing.com consensus was for 51.0 percent. Here is the report summary: The PMI™ registered 51.7 percent, an increase of 0.2 percentage point from September's reading of 51.5 percent, indicating growth in manufacturing at a slightly faster rate. The New Orders Index registered 54.2 percent, an increase of 1.9 percentage points from September, indicating growth in new orders for the second consecutive month. The Production Index registered 52.4 percent, an increase of 2.9 percentage points, indicating growth in production following two months of contraction. The Employment Index registered 52.1 percent, a decrease of 2.6 percentage points, and the Prices Index registered 55 percent, reflecting a decrease of 3 percentage points. Comments from the panel this month reflect continued concern over a fragile global economy and soft orders across several manufacturing sectors. The chart below shows the Manufacturing series, which stretches back to 1948. I've highlighted the eleven recessions during this time frame and highlighted the index value the month before the recession starts.

US data: manufacturing activity remains weak; improvements seen in consumer confidence and resi construction - The Manufacturing ISM number did not surprise to the downside as Goldman's GSAI was indicating (see discussion). The divergence between GSAI and the ISM has in fact widened, as the corporate sector exhibits a great deal of pessimism. Nevertheless US manufacturing continues to struggle. The longer trend for ISM seems to be trending lower. The Markit Manufacturing PMI paints a similar picture - though both indices beat consensus. Manufacturing is not contracting (the way it has in Europe or even China) but there doesn't seem to be much growth either. There are however two key developments in the US economy that are fairly positive: 1. Consumer confidence is improving. Clearly it is not at the 2006-2007 period levels, but any improvement is good news at this stage. 2. Housing/construction shows gradual improvements as well. If anything it is nice to see construction spending in the positive territory again.

Vital Signs Chart: Expanding U.S. Manufacturing - Factories stepped up their activity modestly in October. The ISM manufacturing index rose 0.2 percentage point from September to 51.7, just above the 50-point threshold indicating industry growth. Manufacturers reported a rise in new orders and production, as consumers continue to spend. However, factories slowed their pace of hiring as exports fell and American businesses remain uncertain about the U.S. and global economies.

Poll Results | IGM Forum: Question A: The federal government would make the average U.S. citizen better off by using policies that directly focus more on increasing manufacturing employment than employment in other sectors. Question B: Because firms and inventors do not capture the full returns from research and development, the government would increase the average well-being of Americans (and potentially of others too) by favoring R&D using the tax code.

The Latest Exports Data Is Troubling - Over the past several months we have been discussing that this is no longer your "father's economy." What we have meant by this is the economic environment today is vastly different than that which most of our parents grew up in. We recently discussed in "Debt: Driving Our Economy Since 1980" that: "From the 1950’s through the late 1970’s...the U.S. was the manufacturing and production powerhouse of the entire global economy post the wide spread devastation of Europe, Germany and Japan during WWII. The rebuilding of Europe and Japan, combined with the years of pent up demand for goods domestically, led to a strongly growing economy and increased personal savings. However, beginning in 1980 the world changed. The development of communications shrank the global marketplace while the rise of technology allowed the U.S. to embark upon a massive shift to export manufacturing to the lowest cost provider in order to import cheaper goods." The importance of this shift in the U.S. from away from being the epicenter of global production and manufacturing to a service and finance based economy should not be overlooked. This transition is responsible for the issues that are impeding economic growth in the U.S. today from structural unemployment, declining wage growth and lower economic prosperity. The four-panel chart below gives you a visualization of this transition showing the year-over-year change in the data, with the exception of the personal savings rate which is linear, prior and post-1980.

Lee Iacocca: Mitt Will Make It Easier for Auto Companies to Evade Taxes on Cars Built in China - As part of its effort to pretend that Mitt would be good for the auto industry, the campaign had Lee Iacocca sum up why Mitt would be good for the auto industry. The first paragraph of specifics reads:When Mitt Romney is president, he will reduce our nation’s corporate tax rate to 25 percent from 35 percent – . He will also stop the extra tax automakers are forced to pay when they want to bring home their profits to reinvest in the United States. Obama, of course, has a tax credit specifically for manufacturing companies, meaning under Obama the auto companies would pay less than under Mitt. Iacocca says Mitt would be better for the auto companies because he’d allow the auto companies to repatriate profits from overseas without paying taxes.But that assumes, of course, they’re making profits overseas. It would mean they were doing precisely the thing Mitt is attacking–moving into new markets, like China.

Gasoline Volume Sales, Demographics and our Changing Culture - The Department of Energy's Energy Information Administration (EIA) data on volume sales is over two months old when it released. The latest numbers through mid-August were released today (a few days later than their October 24th planned release). However, this report offers an interesting perspective on fascinating aspects of the US economy. Gasoline prices and increases in fuel efficiency are important factors, but there are also some significant demographic and cultural factors in this data series. Because the sales data are highly volatile with some obvious seasonality, I've added a 12-month moving average (MA) to give a clearer indication of the long-term trends. The next chart includes an overlay of monthly retail gasoline prices, all grades and formulations. I've shortened the timeline to start with EIA price series, which dates from April 1993. The retail prices are updated weekly, so the price series is the more current of the two. As we would expect, the rapid rise in gasoline prices in 2008 was accompanied by a significant drop in sales volume. With the official end of the recession in June 2009, sales reversed direction ... slightly. The 12-month MA hit an interim high in November 2010, and then resumed contraction. The moving average for the latest month (August 2012) is about 6.9% below the pre-recession level and 3.8% off the November 2010 interim high. In fact, the latest data point is a level first achieved over thirteen years ago, in November 1998.

Meet Sandy, the Game Changer - So says Sandy, "Go ahead and protect yourself against low-risk threats. I want to remind you how vulnerable you are to the more predictable, commonplace variety." Sandy also will batter the other elements of the region's infrastructure, in which America has failed to invest for the past half century or so. She will destroy weakened roadways and bridges and breakwaters. She will lash ancient port facilities. She will paralyze an air-traffic control system and railway systems that lag behind the world in their use of modern technologies. She will say, "Why aren't you spending your precious resources to protect your people and your economy? Why are you frittering away money building roads and airfields on the other side of the world when you should be taking care of business at home?"

Sandy Total Loss Estimate: Up To $100 Billion - In a stunningly accurate prediction of what to expect from a 100-year storm, the following 2011 report assessing the 'risk increase to infrastructure due to a sea level rise' provides everything you did not want to know about just how bad the situation is with recovery from Sandy's damage but were afraid to ask. Based on extrapolations from storm surge heights, the authors see a 'perfect storm' of this magnitude likely creating a total loss between $50 and $100bn. As Atlantic Cities notes, citing the report: The researchers also estimate that... it could take the subway system about 21 days to get working at 90 percent functionality. If all potential damage is considered, ...that timeline could increase to several months, and that "permanent restoration of the system to the full revenue service that was previously available could take more than two years."

Business Economists’ Optimism Fades - U.S. businesses are becoming less optimistic about the economy amid broad uncertainty over policy in Washington and growth abroad, according to a National Association for Business Economics survey released Monday. NABE found that nearly two-thirds of the 67 corporate and industry economists it surveyed forecast real gross domestic product growth of 1.1% to 2% from now until the third quarter of 2013. That is a downgrade from the group’s previous tally in July, when less than one-third expected such slow growth. “The survey suggests continued flatness in sales, profit margins and employment, as well as expectations of moderately slow real GDP growth,” said Dr. Nayantara Hensel, chairwoman of the NABE industry survey and professor of industry and business at the National Defense University. About 31% of the panelists forecast real GDP growth between 2.1% and 3% and only 5% of the panelists forecast that real GDP growth will exceed 3%, NABE said. The outlook would darken significantly if the federal government runs off the so-called fiscal cliff–a mix of tax increases and spending cuts set to begin in January. About 63% of the responses expect sales to fall if the White House and Congress don’t reach a deal averting the cliff.

Disappointing Labor Markets in the Nation and in Key States - Earlier this year the CBO Budget and Economic Outlook (p 36-37) pointed out that much of recent decline in the national unemployment rate has been due to an unusually large decline in the labor force participation rate. Of course, people who drop out of the labor force—even if they give up looking for a job because they could not find one—are not counted as unemployed. Were it not for the unusual labor force decline (that is, the decline beyond what is due to the aging of the baby boomers and the downturn in the business cycle), the unemployment rate would be “about 1¼ percentage points higher than the actual rate” according to the CBO. This means that the current 7.8 percent is actually 9.1 percent. Of course, the same phenomenon is occurring at the state level, and affects voters’ views in the battleground states about the effectiveness or ineffectiveness of economic policy. It is difficult to estimate aging and business cycle effects on the labor force at the state level, but an examination of employment can give a pretty clear picture of what is going on. Consider Iowa for example. Many have noted that the unemployment rate is lower in Iowa than the national average, but that has been the case for decades. What is less well known is that employment has recently been declining in Iowa. In fact, employment is now lower in Iowa than at the start of the recent recovery, meaning that in Iowa the recovery is even weaker than the United States as a whole.

The Problem with Structural Unemployment in the U.S. - Following the most recent recession, an attempt has been made to explain current levels of unemployment as resulting from structural unemployment, or a mismatch between the skills of the unemployed and the types of jobs available. The evidence, however, indicates that the issue is actually a lack of aggregate demand. Since accepting one of these views over the other will lead to very different policy solutions, it is important to accurately assess the cause of unemployment. This issue brief finds that the evidence is overwhelming consistent with the view that a lack of demand, caused by the collapse of the housing bubble is at the root of U.S. unemployment. In this context, measures that focus on improving skills - a remedy for structural unemployment - will have little effect on overall employment

ADP Grossly Overstates Job Growth for Last 12 Months by 419,000 Jobs - ADP has announced revised methodology to "enhance" its monthly job reports, no doubt because its prior numbers simply were grossly inaccurate. Indeed, I stopped commenting on ADP numbers because I thought they were absurd. Let's take a look at their revised methodology. Here is the ADP Jobs Report for September using the revised methodology. "Private sector employment increased by 88,200 jobs from August to September, according to the September ADP National Employment Report®. The report, which is derived from ADP’s actual payroll data, measures the change in total U.S. nonfarm private employment each month on a seasonally adjusted basis. Last month’s employment estimate was revised down from 80,000 to 76,400 jobs. Compare to what ADP actually reported last month: "Employment in the U.S. nonfarm private business sector increased by 162,000 from August to September, on a seasonally adjusted basis. The estimated gains in previous months were revised lower: The July increase was reduced by 17,000 to an increase of 156,000, while the August increase was reduced by 12,000 to an increase of 189,000." Got that? September private business sector increased by 162,000 but now we see September was revised down to 76,400 from 80,000 (not 162,000 as actually reported).

ADP "Cancels" 365,000 Private Jobs Created In 2012 - Frequent readers know that in addition of any "data" and "numbers" out of Larry Yun's National Association of Realtors, which we openly boycott as these are consistently manipulated (recall the massive historical December 2011 revision), slanted and conflicted, the second dataset which we have mocked with a passion is anything coming out of the ADP, which every month releases its "Private Jobs" number a day before the official BLS Non-farm Payroll data. Today, our mockeries have been proven 100% spot on. The reason? A week ago, ADP announced that going forward it would coordinate with Moody's (yes, that Moody's), and especially its chief economist, SecTres hopeful (InTrade odds of actually attain that post: 0.00) Mark Zandi, to fudge adjust its data going forward. The data revision was supposed to be publicly disclosed tomorrow when the official October ADP number was released. Well, just like today's Chicago PMI, and so many other data points recently, this too was released early. What the early release allowed us to promptly calculate is that using the historically revised numbers, and comparing those based on the original methodology, in 2012 alone, the US would have lost a whopping... 365,000 private jobs! Putting thus number in context, according to the revised methodology, the US has generated only 1.172MM jobs in 2012 through September, or in other words, a statistical "fix" magically eliminated over 30% of what the market had previously expected were job gains, a number which the incumbent president has certain taken advantage of on more than one occasions while campaigning.

Weekly Initial Unemployment Claims decline to 363,000 - The DOL reports: In the week ending October 27, the advance figure for seasonally adjusted initial claims was 363,000, a decrease of 9,000 from the previous week's revised figure of 372,000. The 4-week moving average was 367,250, a decrease of 1,500 from the previous week's revised average of 368,750.The previous week was revised up from 369,000. The following graph shows the 4-week moving average of weekly claims since January 2000. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 367,250. This is about 4,000 above the cycle low for the 4-week average of 363,000 in March. Weekly claims were slihgtly lower than the consensus forecast of 365,000. And here is a long term graph of weekly claims: NOTE: Due to Hurricane Sandy, we will probably see an increase in initial unemployment claims over the next few weeks.

Weekly Unemployment Claims at 363K Better Than the Consensus 375K - The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 363,000 new claims number was a 9,000 decrease from the previous week's upward revision of 3,000. The less volatile and closely watched four-week moving average, which is a better indicator of the recent trend, is at 367,250, down 1,500 from last week. Here is the official statement from the Department of Labor: In the week ending October 27, the advance figure for seasonally adjusted initial claims was 363,000, a decrease of 9,000 from the previous week's revised figure of 372,000. The 4-week moving average was 367,250, a decrease of 1,500 from the previous week's revised average of 368,750. The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending October 20, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending October 20 was 3,263,000, an increase of 4,000 from the preceding week's revised level of 3,259,000. The 4-week moving average was 3,266,500, a decrease of 6,250 from the preceding week's revised average of 3,272,750. Today's seasonally adjusted number was below the Briefing.com consensus estimate of 375K. Here is a close look at the data over the past few years (with a callout for 2012), which gives a clearer sense of the overall trend in relation to the last recession and the trend in recent weeks. In the callout, note the red dots for the past four weeks. These clearly illustrate the data anomaly refrenced above.

ADP: Private Employment increased 158,000 in October - ADP reported that employment in the U.S. nonfarm private business sector increased by 158,000 from September to October, on a seasonally adjusted basis. This was above the consensus forecast for private sector jobs added, and is a little surprising given the change in methodology. Note: The BLS reports on Friday, and the consensus is for an increase of 125,000 payroll jobs in October, on a seasonally adjusted (SA) basis. ADP hasn't been very useful in predicting the BLS report (maybe the new method will work better), but this suggests a stronger than consensus report.

Economic Data Flood: The Weakness Behind The Headlines - According to the most recent release of the ADP employment report employers added 158,000 jobs in October. While the reported number of hires in October very slightly beat the headline estimate of 155,000 jobs, ADP recently revised their data which has significantly changed previous reported data. Therefore, in this context, today's ADP report has to be taken at face value. Furthermore, it is important to remember that in order to be counted as "employed" by ADP an individual needs only to work for ONE hour in the given reporting period. Since Halloween is the second busiest shopping period next to Christmas there were many temporary hires for the month to support retailers. The chart below shows the revisions made to ADP's employment data. The revisions were primarily to the negative and since January of 2011 there are 178,500 few jobs than were previously reported. The trend of employment has been on the decline over the last several months as the impact of the recession in the Eurozone has slowly eaten its way into the domestic economy. Today's report of 158,000 jobs is lower than the last two months of 189,000 and 162,000. This is consistent with the many manufacturing reports as of late where hiring intentions, both currently and future, have been on the decline as new orders and order backlogs have fallen. Lastly, the hiring trend decline in ADP is likely to show up in the BLS employment report for October. Expectations are currently that the BLS will report that 125,000 jobs were created. However, if the trend in ADP is applied to the BLS report (which showed 181,000 in July, 142,000 in August, and 114,000 in September) it would be reasonable to assume that roughly 100,000 jobs were created in October.

U.S. Unadjusted Unemployment Down to 7.0% in October - Gallup - U.S. unemployment, as measured by Gallup without seasonal adjustment, fell to 7.0% for the month of October, down significantly from the 7.9% measured at the end of September. Gallup's seasonally adjusted unemployment rate is 7.4%, improved more than a half a point from September. These results are based on Gallup Daily tracking interviews, conducted by landline and cell phone, with approximately 30,000 Americans throughout the month -- 68.3% of whom in October reported being active in the workforce. The monthly average for October excludes Oct. 29 and Oct. 30, the two days that Gallup did not poll because of the effects of Superstorm Sandy on the East Coast. For October, Gallup applied the .04 upward adjustment the government used last year.Seasonally unadjusted unemployment of 7.0% is the lowest Gallup has recorded since it began collecting unemployment data in January 2010. It is also more than a full point and a half improvement over the October 2011 rate, when unadjusted unemployment was 8.4%. The size of the workforce, which can influence employment rates, was little changed, at 68.3%, from 68.2% in September. Underemployment, as measured without seasonal adjustment, was 15.9% in October, an improvement since the end of September and a significant decline from 17.8% a year ago. This is the lowest underemployment rate since Gallup started collecting underemployment data in 2010.

October Employment Report: 171,000 Jobs, 7.9% Unemployment Rate - From the BLS: The civilian labor force rose by 578,000 to 155.6 million in October, and the labor force participation rate edged up to 63.8 percent. Total employment rose by 410,000 over the month. The change in total nonfarm payroll employment for August was revised from +142,000 to +192,000, and the change for September was revised from +114,000 to +148,000. Total nonfarm payroll employment increased by 171,000 in October, and the unemployment rate was essentially unchanged at 7.9 percent, With 171,000 payroll jobs added, and the upward revisions to the August and September reports, this was a solid report. And that doesn't include the annual benchmark revision to be released early next year that will also show more jobs. This was above expectations of 125,000 payroll jobs added. The second graph shows the unemployment rate. The unemployment rate increased slightly to 7.9%. The unemployment rate is from the household report, and that report showed another month of strong job growth. The unemployment rate increased because of the significant increase in the labor force (and the increase in the labor force participation rate). The third graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate increased to 63.8% in October (blue line. This is the percentage of the working age population in the labor force. The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although most of the recent decline is due to demographics. The Employment-Population ratio increased to 58.8% in October (black line). I'll post the 25 to 54 age group employment-population ratio graph later. The fourth graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions. This shows the depth of the recent employment recession - worse than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis. The fifth graph shows the job losses from the start of the employment recession, in percentage terms compared to other financial crisis (including the Great Depression).

171K New Jobs, But Unemployment Rate Rises to 7.9% - Here is the lead paragraph from the Employment Situation Summary released this morning by the Bureau of Labor Statistics, with the bracketed text added by me: Total nonfarm payroll employment increased by 171,000 in October, and the unemployment rate was essentially unchanged at 7.9 percent [up from 7.8 percent last month], the U.S. Bureau of Labor Statistics reported today. Employment rose in professional and business services, health care, and retail trade. Today's nonfarm number is significantly above the briefing.com consensus, which was for 125K new nonfarm jobs. Moreover, the prior month's number for new jobs was revised upward to 148K from the original 114K. The unemployment peak for the current cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and both the nominal and real (inflation-adjusted) price of the S&P Composite since 1948. The second chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. The latest number is 3.2% — up from 3.1% last month. This measure gives an alternative perspective on the relative severity of economic conditions. As we readily see, this metric still remains significantly higher than the peak in 1983, which came six months after the broader measure topped out at 10.8%.

The U.S. Economy Adds 171,000 Jobs in October, but Challenges Remain - The Labor Department announced this morning that the U.S. economy added 171,000 jobs in October, and that the unemployment rate ticked up one-tenth of one percent to 7.9%, besting the consensus prediction of 125,000 new jobs. And with the announcement, the government’s monthly Employment Situation Report can now revert back to its usual status of being just another data point among many which help paint a picture of the state of the economy. Sure, payroll data will always get more attention than, say, GDP growth, because it’s more tangible to the lives of news readers. But like much else in a heated election season, this number was elevated to mean much more than it was ever intended to: a numerical indicator of the President’s success as a policy maker. This is silly for many reasons, not the least of which being that national economies are much more than the sum of its various public policies. Presidents have much less effect on monthly job creation than they (or, sometimes, their political opponents) would like you to believe. In addition, the Bureau of Labor Statistic’s monthly job estimates are imprecise, with huge margins of error. The Labor Department does its best to approximate the number of jobs added each month, polling 140,000 employers each month, and to determine the rate of unemployment in the country, which it does by polling 60,000 households each month. These are massive sample sizes, but when measuring something as complex as a $14 trillion economy that employs hundreds of millions of workers, you can only be so precise.

The Employment Situation - This was another mixed employment report. The headline increase of 171,000 increase in payroll employment and 410,000 rise in employment reported in the household survey appeared strong. But other signs of weakness appeared within the report. The 184,000 increase in private payroll employment was the strongest since February. The unemployment rate ticked up from 7.8 to 7.9. But this may actually be a bullish development because it stemmed from a 578,000 jump in the labor force. A large increase in the labor force may mean that people are more optimistic about employment prospects and are rejoining the labor force. Moreover, the number of people working part time for economic reasons fell -304,000. But the work week fell from 33.7 to 33.6 and the index of aggregate hours works fell -0.1 from 103.8 to 103.7. Relative to the trend establish early in this cycle, hours worked has been weak for several months.. Moreover average hourly earnings was essentially unchanged as it fell from $667.26 to $664.94. The growth in average hourly earnings plunged to 1.2%, an all time record low. Average weekly earnings growth was also 1.2%, the smallest gain in this cycle.

Nonfarm Payrolls +171,000, Unemployment Rate 7.9%; Good All Around Numbers - The establishment report of +171,000 jobs was above what most expected. Hurricane Sandy had no effect. The BLS finished gathering stats before the hurricane hit. On the surface, and in detail, this is the best jobs report in quite a while. Jobs gained were full-time jobs for a change. I do not attribute this report to BLS manipulation. Here is an overview of today's release.

Payrolls +171,000 - Establishment Survey

US Employment +410,000 - Household Survey

Involuntary Part-Time Work -269,000 - Household Survey

Involuntary Part-Time Work +582,000 last month - Household Survey

Baseline Unemployment Rate +.01 at 7.9% - Household Survey

U-6 unemployment -.01 to 14.6%.

The Civilian Labor Force +578,000

Recall that the unemployment rate varies in accordance with the Household Survey not the reported headline jobs number, and not in accordance with the weekly claims data.

The healing continues - NEVER has higher unemployment seemed so good. America's jobless rate edged up to 7.9% in October from 7.8% in September. For a change, that is not a reason for despair, because it rose for the right reason—more people are looking for work—and because it corroborates other signs of healing in the labour market, including last month's sharp and unexpected fall in unemployment. Non-farm payrolls advanced a higher-than-expected 171,000. This gain was corroborated by the separate and more volatile survey of households (which produces the unemployment rate), according to which employment rose 410,000. As always, the payroll survey probably is more accurate than the household survey because of its larger sample size. What's important is that both moved in the same direction. Unemployment rose because the labour force expanded: the proportion of the working-age population now employed or looking for work—the participation rate—rose to 63.8%, its highest since March, from 63.6%. The rise in the unemployment rate was welcome in part because it wasn't bigger. Last month it plunged to 7.8%, from 8.1% in August, driven by an eye-popping jump in the household measure of employment. That it fell below 8% for the first time since Barack Obama took office prompted dark accusations of manipulation by his "Chicago boys". Even impartial observers wondered whether the drop was a fluke, exaggerated by some seasonal or other technical factor. Wall Street had expected some retracement, and got it, but it was small enough to confirm the underlying story of genuine improvement. Another reinforcing factor is that revisions raised the job gains in August and September 173,000 in the last four months, the best since April. Finally, the improving tone in the labour market is confirmed by declining claims for unemployment insurance and steadily rising consumer confidence.

Jobs Report, First Impressions - Well, the big jobs report is out showing payrolls grew by a more-than-expected 171,000 last month and the unemployment rate ticked up slightly, as expected, to 7.9%. Job growth for the prior two months was revised up by 84,000, and the average monthly pace of job growth over the past four months–a useful way of smoothing out monthly noise in the data–is 173,000, a sharp acceleration over the second quarter’s pace of 67,000 per month (see figure). The uptick in unemployment was expected after September’s 0.3 percentage point drop, but a few things are worth noting. First, the 0.1 point increase is statistically indistinguishable from no change at all–the unemployment rate has to rise or fall about 0.2 points to be significant. At 7.9%, the jobless rate is down significantly–by one full point–from its rate one year ago. Second, one reason for the slight uptick was more people coming into the labor market seeking work, a potential reversal of an earlier trend. We’ll need to see how this development evolves in coming months, but we may be seeing early signs of an improving job market pulling more job seekers in from the sidelines. All told, given the acceleration in payroll growth, the upward revisions to prior months payroll gains, the trend decline in unemployment, and the pick-up in labor force participation, today’s report is generally, pointing to job market that’s showing signs of improvement.

The October Employment Situation: Continued Improvement - Figures 1 and 2 illustrate the improvement in nonfarm payroll and private nonfarm payroll employment, respectively. Figure 3 highlights the fact that total civilian employment and labor force both increased in October. Interestingly, civlian employment growth in October continues that reported for September, the veracity of which some observers had questioned. Note that (1) hours have increased more than employment in the private nonfarm sector; (2) unemployment has decreased, and is has decreased over the last three months as employment has risen more rapidly than the labor force; (3) the employment growth in October succeeds the growth in September which some observers had cited as implausible (a claim critically assessed here). The employment situation report is here.

A Solid Report - Not the greatest, but solid and encouraging, is how I describe the October employment report. Nonfarm payrolls gained by 171k, and the two previous months were revised upward. Interestingly, the August number, which originally posted at 92k and cleared the way for QE3, has been revised up to 192k. I have trouble believing that the FOMC moderates would have fallen in line with Federal Reserve Chairman Ben Bernanke in the wake of a 192k NFP gain. This is especially true given the subsequent numbers. In short, the August print came at just the right time, allowing Bernanke to clear away concerns of premature tightening just as the economy was set to show signs of strength. The average gain in the last three months was 170k, just above the twelve-month average of 162k. Looking through the peaks and valleys, the last year has been remarkably steady: We have seen two solid back-to-back gains in civilian employment, suggesting that recent NFP gains are not ephemeral: The unemployment rate ticked up, but for the right reason - the labor force participation rate rose, hopefully signaling that improving labor market conditions are drawing people back into the labor force. Of course, still not all is well. For example, long-term joblessness remains high, as does employment part-time for economic reasons. Indeed, dismal wage growth continues to reveal the underlying weakness of the labor market:

Good News! The Unemployment Rate Rose - The U.S. unemployment rate rose to 7.9% in October, but behind the increase was some good news evidenced by a fall in a broader measure of unemployment to 14.6% from 14.7% a month earlier. The increase in the main unemployment rate was driven by positive factors. In previous months, the rate has fallen because more Americans were no longer looking for work. This month the rate increased because the opposite trend was occurring. For the second month in a row, the labor force increased, as more people were seeking jobs. That could be a sign of confidence in the state of the labor market. The unemployment rate is calculated based on the number of unemployed — people who are without jobs, who are available to work and who have actively sought work in the prior four weeks. The “actively looking for work” definition is fairly broad, including people who contacted an employer, employment agency, job center or friends; sent out resumes or filled out applications; or answered or placed ads, among other things. The unemployment rate is calculated by dividing the number of unemployed by the total number of people in the labor force. Underlying the increase in the jobless rate were more positive numbers. The number of people who say they are working increased by 410,000. Meanwhile, even though there were 170,000 more people unemployed, the total work force rose by a much larger 578,000. That offers another signal that discouraged workers may be returning to the labor force. Another positive sign came from the decline in the broader unemployment rate, known as the “U-6″ for its data classification by the Labor Department. That includes everyone in the official rate plus “marginally attached workers” — those who are neither working nor looking for work, but say they want a job and have looked for work recently; and people who are employed part-time for economic reasons, meaning they want full-time work but took a part-time schedule instead because that’s all they could find.

Current Population Survey Employment Report in Graphs, Unemployment Rate 7.9% for October 2012 -- The BLS employment report shows the unemployment rate ticked up by 0.1 percentage points to 7.9%. The reason for this up-tick is more people participated in the labor force in October. We love economic eye candy at The Economic Populist and this overview graphs many of the statistics from the Current Population Survey of the employment report. The labor participation rate increased 0.2 percentage points to 63.8%. More people in the labor force is one of the reasons the unemployment rate increased. The labor participation rate is still at artificial lows. For those claiming it's just people retired, we proved that false by analyzing labor participation rates by age. The number of employed increased by 410,000 in a month to a total of 143,384,000 employed people in the U.S. Below is a graph of the Current Population Survey employed. Those unemployed increased by 170,000 to a new level of 12,258,000. Below is the change in unemployed and as we can see, this number swings wildly on a month to month basis, as we describe here and why you shouldn't use the CPS figures on a month to month basis to determine jobs. The civilian labor force also jumped up by 578,000 to 155,641,000. Notice in the graph below how many more people are in the labor force than at the start of the 2008 recession. Population increases every month and this post gives details on that increase, while this one describes BLS labor concepts as well as how many jobs are needed just to keep up with the increased population. Those not in the labor force shrunk by -369,000 to 88,341,000. Below is the change to show on a month to month basis, the CPS shows quite a bit of variance. We talk about the wild monthly CPS changes in this post. Those considered employed as a ratio to the total Civilian noninstitutional population increased by 0.1 percentage points to stand at 58.8%. Below is a graph since 1980 to show how low this ratio is. A huge problem with today's labor market is the gross number of part-time jobs generally. There is a huge number of people who need full-time jobs with benefits who can't get decent career oriented positions. Those forced in part time jobs decreased by 269 thousand to 8,344,000. That's a hell of a lot of people stuck in part-time jobs who need full-time work. Below is a graph of forced part-time because they got their hours cut as a percentage of the total employed. This is known as slack work conditions and dropped by -304,000 people in October. Below is a graph of forced part-timers due to slack work conditions as a percentage of the civilian labor force.

October Data Show Stronger Labor Market as Workers Return and Part-Time Work Falls - The October jobs figures released today by the BLS showed a stronger U.S. labor market. The unemployment rate edged up by 0.08 percentage points, just enough to raise the headline rate from 7.8 to 7.9 percent. However, a look at the underlying data showed that the uptick in the headline rate was a “good” increase of the kind that we often see as previously discouraged workers return to a strengthening labor market. The labor force increased by 578,000 workers in October. The number of employed persons, as measured by the household survey from which these data come, increased by 410,000. Since the increase in new jobholders was less than the increase in the labor force, the number of unemployed increased by a reported 170,000. (The numbers don’t sum because of rounding errors.) The unemployment rate is the ratio of employed persons to the labor force. The BLS also publishes a broader measure of unemployment known as U-6. It includes discouraged workers who have given up looking because they think there are no jobs to be found, people who are working part-time but would prefer full-time work if available, and some other marginally attached workers. The number of involuntary part-time workers fell by 296,000 in October, helping to bring U-6 down from 14.7 percent to 14.6 percent. Looking at other data from the household survey, we find that the employment-population ratio increased from 58.7 to 58.8 percent. That marks its highest level in more than three years. The labor force participation rate increased as well, from 63.6 percent to 63.8 percent. Both of these data points are further signs of a strengthening labor market.

Takeaways From Jobs Report - Employers added 171,000 jobs in October, better than Wall Street expectations, but the unemployment rate ticked up to 7.9%. Economists are still digesting the report, but here are a few key takeaways:

Good news in the revisions: The Labor Department revised up its estimate of September job gains to 148,000 from 114,000 and its August estimate to 192,000 from 142,000. That’s a net gain of 84,000 jobs. Combined with the October figures, the revisions mean the economy has now added an average of 170,000 jobs per month over the past three months, a marked acceleration from the 104,000 average from May through July. Economists had feared a summer slowdown in jobs growth; instead, we saw an acceleration.

The surveys converge: Last month, much was made of the split between the two surveys used to compile the jobs report: The survey of businesses, which is used to establish the monthly payroll figure, showed modest gains, while the survey of households, which determines the unemployment rate, showed much stronger improvement. This month, the surveys told similar stories: The business survey showed relatively robust hiring, at least by recent standards, and the household survey, despite the uptick in the unemployment rate, showed similarly solid progress. The upward revisions to September and August’s payroll gains also help explain the surprising drop in the unemployment rate in last month’s report

Chart of the day, employment edition - There’s lots of good news in today’s employment report: payrolls rose substantially in October, and the already-great numbers for August and September were revised upwards to boot. Even the uptick in the unemployment rate, from 7.8% to 7.9%, was actually positive in many ways. Americans are back looking for work, which bodes well for the next few months. And then there’s the technocratic good news, too: the BLS isn’t just releasing numbers any more, it’s also releasing charts! Along with the standard payrolls press release this morning, there was also a PDF file which included the chart above. This chart I think tells the big-picture story very well. Firstly, jobs aren’t political, they’re economic. They rise when the economy is doing well, and fall during recessions: the name or party of the president can only affect things at the margin. Secondly, we’re still in very bad shape, employment-wise: there’s a long way to go before we get back to where we were before the crisis. And that’s in absolute terms: remember that the US population has been growing all along. And thirdly, in case you needed any reminder, this recovery is long and painful. Look at the rate of employment growth from 2002 to 2006, and extrapolate it upwards to get an idea of what the capacity of the US economy is: where we could be, if we hadn’t been hit by the crisis. Then, look at the gradient of the current recovery: it’s not noticeably steeper than the trend-growth gradient. Which means, to a first approximation, that we’re just as far below capacity as we were when the recession ended.

Employment: An encouraging report (also more graphs) - This was another encouraging employment report. The 171,000 payroll jobs added in October, plus the 84,000 in upward revisions to the August and September reports, suggests decent job growth recently. Some of this reported increase might be related to distorted seasonal factors (distorted by the severe recession). This was the third year in a row with weaker payroll growth in the summer, and it might be helpful to look at the year-over-year growth (year-over-year, payroll has increased close to 2 million jobs). Since the participation rate has declined recently due to cyclical (recession) and demographic (aging population) reasons, an important graph is the employment-population ratio for the key working age group: 25 to 54 years old. In the earlier period the employment-population ratio for this group was trending up as women joined the labor force. The ratio has been mostly moving sideways since the early '90s, with ups and downs related to the business cycle. This ratio should probably move close to 80% as the economy recovers. The ratio was unchanged in October at 76.0%, the highest level since early 2009 - but there is still a long ways to go. This graph shows the job losses from the start of the employment recession, in percentage terms - this time aligned at maximum job losses. The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) fell by 269,000 to 8.3 million in October, partially offsetting an increase of 582,000 in September. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. The number of part time workers declined in October to 8.34 millon from 8.61 million in September. These workers are included in the alternate measure of labor underutilization (U-6) that declined to 14.6% in October. This graph shows the number of workers unemployed for 27 weeks or more. According to the BLS, there are 5.00 million workers who have been unemployed for more than 26 weeks and still want a job. This was up from 4.84 million in September. This is generally trending down, but is still very high. Long term unemployment remains one of the key labor problems in the US. This graph shows total state and government payroll employment since January 2007. State and local governments lost 129,000 jobs in 2009, 262,000 in 2010, and 230,000 in 2011. So far in 2012, state and local governments have actually added a few jobs, although state and local government fell by 7,000 in October. Note: The dashed line shows an estimate including the benchmark revision.

Number of the Week: Stagnant Wage Growth - 1 cent: The drop in hourly earnings in October from a month earlier U.S. job growth has accelerated, but the bad news is that people who already have jobs aren’t getting raises or more time on the clock. While perhaps good for corporate profits and a restraint on inflation, weak wage gains could also crimp consumer spending in coming months. The Labor Department Friday reported that hours worked were flat for the fourth straight month. Meanwhile, average hourly earnings for all employees on private payrolls fell by 1 cent to $23.58 in October. Over the past 12 months, earnings have risen a scant 1.6%. That’s not enough to keep up with inflation. The consumer price index was up 2% in September from a year earlier. It’s even worse for blue-collar workers. Average hourly earnings of private-sector production and nonsupervisory employees edged down by 1 cent to $19.79, only a 1.1% increase over the past year.

The latest jobs number - a deeper dive - The BLS today reported a gain of 171,00 in nonfarm payrolls. The actual, not seasonally adjusted (NSA) number was a gain of 911,000. In the actual (NSA) data, October is always an up month. Last year the October NSA gain was 895,000. In 2010, it was 978,000. The 10 year average gain for October for 2002 to 2011 was 737,000. This month’s report was a good one, consistent with the trend. There’s a problem with the seasonally adjusted number. The SA number for this month will subsequently be revised in each of the next 5 years as the BLS attempts to fit the SA number to the actual change. It will also have a major benchmark revision in February, when the annual benchmarking process is finalized. The BLS headline number is really lousy data, but the market pays attention to it. In September, the August SA headline number was revised up by 46,000 and July was revised up by 40,000. Then this month both August and September were revised up, August by 50,000 and September by 34,000. The BLS will revise this month’s number, not only next month and the month after, but every year for the next 5 years as they hone the SA number to include a look back to pinpoint where this month’s number actually should have been. The truth is that the current SA number is a wild guess and a fraud. The BLS statisticians know it and have publicized that fact, but the mainstream media has ignored the warnings for years. We need to look at the best data we can find to know the truth about what’s going on. That’s the NSA data. The withholding tax collections are actual and real time, but from time to time may be skewed by factors other than the number of employed persons, so we need to be alert for anomalies in that data.

The BLS Jobs Report Covering October 2012: A Good Report That Still Doesn’t Add Up -The Bureau of Labor Statistics continues to struggle with a model that does not correspond well to what is going on in the economy. Follow me. In the Establishment or survey of businesses, 171,000 jobs (seasonally adjusted) were created in October. In the Household survey, employment (seasonally adjusted) increased by 410,000 or about two and a half times the number of jobs created. Now the two surveys have very different levels of statistical significance: 100,000 for the Establishment survey and 400,000 for the Household survey, and they cover slightly different population sets, but it would seem a goal of its modeling that the two surveys converge as much as possible. There are also other problems. In the Household survey last month, the number of involuntary part time workers (seasonally adjusted) spiked 582,000. As I wrote in a post here (Timing and Phantom Data), about 300,000 of that increase was phantom, the result of a statistical glitch in the seasonal adjustment. As I predicted, most of it (269,000) disappeared this month. Curiously, these phantoms may have been converted into voluntary part timers. Voluntary part timers increased 187,000 this month, but there is no way of knowing. Nor is the larger and supposedly more accurate Establishment survey immune from problems. Look at the revisions (seasonally adjusted) for the two most recent months. August 96,000 > 142,000 > 192,000. September 114,000 > 148,000. The August jobs numbers were revised upward 92%; September, 30% in its first revision. August went from disappointing to very good. I mean what is the point of the modeling if the initial results signify nothing and that the final results may be either bad or good. With all those caveats, let’s turn to the numbers.

Job Changes By Sector In Past Year - Curious which sectors, according to the BLS, have been hiring in the past year? Per the Establishment survey, of the 1,949K or so jobs added in the past year, the bulk of additions have come to the Professional and Business Services sector (525K), Education and Health (414K), and Trade, Transportation and Utilities (345K). Government has actually seen a decline in total jobs in the past year.

And The Not So Pretty: Record Low Rise In Average Hourly Wages - As we first observed in February of 2012, we will not tire of repeating that when it comes to the jobs picture there are two key components: the quantitative, or the headline jobs and unemployment rate numbers everyone is fascinated by at 8:30 am each first Friday of the month, and the qualitative, or the number that gets far less attention, yet which is so very critical to Americans on those occasions they want to use their earned wages to purchase goods and services. And this is where the ugly side of today's jobs report came out. Because while the quantitative data was good, just as we and everyone else had expected from the final datapoint before the election (the good news there is that finally we will revert to reality following November 6), the qualitative data was ugly. How ugly? As the BLS reported, the average hourly earnings in October declined from $19.80 to $19.79 in September, and at $19.57 last October. This was only the fifth sequential decline in this series since the start of the Depression in December 2007. But more important was the Y/Y change in average hourly earnings. At 1.1% (down from 1.4% a month ago), this was the lowest Y/Y increase in this series, topping the collapse in real earnings which started in December 2008, and is now the lowest in history. In other words, more jobs may be added, but on a real basis, wages are not even keeping up with inflation!

Solid Seasonal Retail Hiring, Graphs for Duration of Unemployment, Unemployment by Education and Diffusion Indexes - According to the BLS employment report, retailers hired seasonal workers at about the same level as last year. Typically retail companies start hiring for the holiday season in October, and really increase hiring in November. Here is a graph that shows the historical net retail jobs added for October, November and December by year. This really shows the collapse in retail hiring in 2008. Since then seasonal hiring has increased back close to more normal levels. Note: I expect the long term trend will be down with more and more internet holiday shopping. Retailers hired 130.1 thousand workers (NSA) net in October. This is slightly below the numbers in 2003 through 2006 and about the same as in 2011. Note: this is NSA (Not Seasonally Adjusted).. There is a decent correlation between retail hiring and retail sales, see: Retail: Seasonal Hiring vs. Retail Sales This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more. The general trend is down for all categories, but only the less than 5 weeks is back to normal levels. The the long term unemployed is at 3.2% of the labor force - and the number (and percent) of long term unemployed remains a serious problem.. This graph shows the unemployment rate by four levels of education (all groups are 25 years and older). Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are generally trending down. Although education matters for the unemployment rate, it doesn't appear to matter as far as finding new employment (all four categories are only gradually declining). Note: This says nothing about the quality of jobs - as an example, a college graduate working at minimum wage would be considered "employed". The BLS diffusion index for total private employment was at 60.7 in October, up from 56.4 in September. For manufacturing, the diffusion index increased to 56.8, up from 46.3 in September. Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS.

The Slide in Wages - Job growth has been modest but steady in the last few months. Wages, on the other hand, have been falling since August, after adjusting for both seasonality and price increases. Assuming this is not just statistical noise, it’s possible that lower wages are enabling or encouraging employers to hire more workers, said John Ryding, the chief economist at RDQ Economics. When the price of something falls, buyers can afford more of it. Another possible explanation relates to the types of jobs being created. If a sizable share of the jobs being created were low-wage jobs — which was the case from the first quarter of 2010 through the first quarter of 2012, anyway — the average wage could get dragged down. For broader context on income stagnation over the last decade and its potential causes, check out this recent article by my colleague David Leonhardt.

Older Americans’ Complicated Role in the Work Force - The Outlook column in today’s Journal highlighted how an aging labor force is driving down the share of the population that’s working or looking for work, a measure known as the participation rate. But take a look at the charts accompanying the article, and another story jumps out: The participation rate among older Americans is actually rising. At first glance, the two trends appear contradictory: If anything, older Americans seem to be driving the participation rate up, not down. But while it’s true that Americans are working longer, it’s also true that they’re less likely to work than their younger counterparts — and less likely than they were when they were younger. 38% of those over age 55 were working in September, up from just under 34% a decade earlier. But nearly 76% of Americans between ages 45 and 54 are working — meaning they’re twice as likely to be employed. Put another way: Today’s 55-year-olds are more likely to be working than 55-year-olds were 20 years ago. But an individual 55-year-old man is less likely to be working now than he was when he was 35. (The trend is even more pronounced for women, who flooded into the workforce in the second half of the 20th century.) That means that the more people we have over age 55, the smaller the share of the population we can expect to be working. And with Baby Boomers now in their 50s and 60s, the over-55 population is growing rapidly.

Little Federal Help for the Long-Term Unemployed - In the economy-focused presidential campaign, the two candidates and their teams have scarcely mentioned what economists describe as not just one of the labor market’s most pressing problems, but the entire country’s: long-term unemployment. Nearly five million Americans out of work for more than six months are left to wonder what kind of help might be coming, as the Federal Reserve, the International Monetary Fund and a bipartisan swath of policy experts implore Washington to act — both to alleviate human misery and to ensure the strength of the economy. ...On the agenda for the next Congress and the next president is ensuring that the unusually long spells of unemployment now afflicting jobless workers remain a temporary setback of the recession. Economists warned that long-term unemployment could be transformed in the next few years into structural unemployment, meaning that the problem is not just too few jobs and too many job seekers, but a large group of workers who no longer match employers’ needs or are no longer considered employable. ... In Washington, many politicians support measures for the long-term unemployed; few demand them...

The Forgotten Long-Term Unemployed - Annie Lowrey and I have an article in Friday’s paper about the gigantic, overlooked underclass of long-term unemployed workers, whose safety net has now frayed bare and whose troubles are probably holding back the overall jobs picture as they become less and less employable. This 4.8-million-strong group has gotten very little attention during the presidential campaign, despite the candidates’ purported focus on the economy. Why has so little notice been paid to this long-suffering group? Maybe it’s because politicians think this is too daunting a problem to promise they can solve. Maybe it’s because solving it would require some money, and proposing more spending is an unpopular step when deficit reduction is in vogue. Or maybe it’s because this group has become so isolated and politically powerless that most voters (and by extension, politicians vying for votes) don’t really care about them. As a general rule, people who are unemployed vote in lower numbers than do people who have jobs. In addition, while unemployment rates remain quite high, unemployment is much more concentrated today than it usually is in poor job markets. Typically in recessions and recoveries, people are churning in and out of joblessness rather quickly. But now once they’re out, they’re stuck. The fact that fewer people are afflicted (even if the affliction is much worse) means they are a smaller, less visible political constituency.

A Part-Time Life, as Hours Shrink and Shift - A cross between Whole Foods and Trader Joe’s, the company brags that its house brands have no artificial colors or trans fats, that two-thirds of its produce is grown locally and that its main distribution center is powered by a $13 million solar installation. But in one crucial respect, Fresh & Easy is just like the vast majority of large American retailers: most employees work part-time, with its stores changing many of their workers’ schedules week to week. At its store here, just east of San Diego, Shannon Hardin oversees seven self-checkout stations, usually by herself. Typically working shifts of five or six hours, she hops between stations — bagging groceries, approving alcohol purchases, explaining the checkout system to shoppers and urging customers to join the retailer’s loyalty program, all while watching for shoplifters. But after nearly five years at Fresh & Easy, she remains a part-time worker despite her desire to work full-time. In fact, all 22 employees at her store are part-time except for the five managers. She earns $10.90 an hour, and with workweeks averaging 28 hours, her yearly pay equals $16,500. “I can’t live on this,” said Ms. Hardin, who is single. “It’s almost impossible.”

Flexibility for Employers Means Less Flexibility for Workers - Dean Baker - Steven Greenhouse has a great piece in the NYT reporting on how employers are gaining increasing control over their workers' hours as a way to minimize costs. The obvious point, which seems to be lost on proponents of workplace flexibility, is that allowing employers to be flexible on their time demands means that workers cannot make plans in their lives. This requires them to be able to make child care and other arrangements on short notice. This is likely a very important factor in the quality of the lives of millions of workers that has received little attention in discussions of economic policy.

Reinventing Unions for the 21st Century - Forbes: The future of organized labor in the United States looks grim. With private union membership declining over the past several decades something has to give or unions as they stand today are destined to fall by the wayside. A contributing factor to this steady decline has been the failure of the National Labor Relations Act (NLRA) to adapt to external factors such as competition and productivity in the global economy. In general, these external factors are a problem for unionism by themselves, but the current state of the NLRA has magnified their effect. The impact of globalization on the decline in private unionization has led me to conclude that unions can only survive if they are liberated from NLRA clauses that restrict both employees and employers. Market forces, rather than laws, should regulate union and business relationships.Under the NLRA today, a majority-supported union is given stringent rights regardless of the economic consequences, which can make unionization costly for business owners. By reducing this cost, the results of returning to a pre-NLRA market-supported structure may be somewhat unexpected. With the right of workers to organize without retaliation remaining in place, a repeal of statutory bargaining requirements could make it easier for workers to organize and voice their opinions. This is because unions would no longer have monopolistic power, which adds tension to an already adversarial situation. Businesses would have less to fear from unions, and thus would not be as adamant to quash organization efforts as they are today.

Gaining from growth: The final report of the Commission on Living Standards : Millions of households are heading for a long period of stagnant living standards unless bold steps are taken to ensure that growth over the next decade is broadly shared. Even with a return to steady growth, it’s now entirely possible living standards for a large swath of low and middle households will be no higher by 2020 than they were in 2000. Yet actions can be taken to alter this course. The findings are contained in the final report of the Commission on Living Standards, a broad group of leading employers, trade unionists, economists and heads of parents’ groups brought together by the Resolution Foundation. The report sets out for the first time the full explanation for the challenge now facing low to middle income households, the risk that the benefits of a period of growth could bypass millions of working households, and key recommendations on how to avoid this.

America’s opportunity gap - For all the differences between Democrats and Republicans that were laid bare during the 2012 U.S. presidential campaign, the parties’ standard-bearers, Barack Obama and Mitt Romney, do seem to have agreed on one thing: the importance of equal opportunity. ... It is no accident that both campaigns chose to emphasize equality of opportunity. It has long been at the center of the American ethos. ... ...there is general consensus among social scientists on a few basic points. First, an American born into a family in the bottom fifth of incomes between the mid-1960s and the mid-1980s has roughly a 30 percent chance of reaching the middle fifth or higher in adulthood, whereas an American born into the top fifth has an 80 percent chance of ending up in the middle fifth or higher. This discrepancy means that there is considerable inequality of opportunity among Americans from different family backgrounds.Second, inequality of opportunity has increased in recent decades. ... Third, in a sharp reversal of historical trends, there is now less equality of opportunity in the United States than in most other wealthy democratic nations. ...So how did the United States get here? Why did it falter where other nations have not? And how can it fix the problem? On the right, a standard proposal is to strengthen families. On the left, a recent favorite is to reduce income inequality. And everyone supports improving education. To know which proposals would work best, it helps to understand the roots of the new opportunity gap..

America - land of inequality - A third of a century ago, all of us economists confidently predicted that America would remain and even become more of a middle-class society. The wealth inequality of the 1870-1929 Gilded Age, we would have said, was a peculiar result of the first age of industrialization. Transformations in technology, public investments in education, a progressive tax system, a safety net and the continued decline in discrimination on the basis of race and sex had made late-20th century America a much more equal place than early-20th century America and would make early-21st century America even more equal - even more of a middle-class society - still. We were wrong. America is at least as unequal as, and might be more unequal than, it was back at the beginning of the 20th century when Republicans, such as President Theodore Roosevelt of New York condemned the power wielded by "malefactors of great wealth," and Democrats such as perennial losing presidential candidate William Jennings Bryan of Nebraska denounced shadowy conspiracies that had somehow manipulated the financial system to rob the typical family of its proper share in America's prosperity. Four major factors have driven rising inequality over the past 35 years: Waning progressivity of our tax system: We no longer tax the rich a significantly greater share of their income than we tax the middle class. The idea behind the cut in relative tax rates on the rich was that it would release blocked entrepreneurial energy and trigger a burst of more rapid economic growth. It did not: Economic growth overall has been slower since President Ronald Reagan began waves of tax cuts for the rich.

Desperate Effort by Tyler Cowen and Megan McArdle to Silence Discussion about Income Inequality - Yves Smith - A tangible sign that the issue of income inequality is taking hold in the American psyche: Tyler Cowen has made a patently ridiculous effort to try to change the topic, and Megan McArdle is dutifully amplifying it (aside: par for the course, McArdle has a remarkably uninformed discussion of thyroid treatment at the top of her short piece. I won’t waste reader time with a discussion, but suffice it to say I have personal experience with the exact symptom pattern she describes, and she’s misrepresenting both the diagnostic approach and endocrinologists’ responses). Cowen’s contribution falls into the category of agnotology, which is “culturally induced ignorance,” or to put it in crasser terms, consciously seeking to make people stupider. His argument: I get uneasy when I read sentences such as “inequality caused X.” “Inequality” didn’t cause anything. Inequality is a statistical residue of some other actual processes. It is better to say what caused X (say “the rage and poverty of inner city residents”) and, if relevant, connect this to inequality as well. Except that the cyclically adjusted deficit is an even more problematic causal concept than “inequality” because it relies on measurement of a modal, namely potential output. This is actually not trivial to unpack. Cowen is basically arguing that because inequality is defined and measured statistically, it is not a real phenomenon of its own, but results from something else, ergo, we should go after the “something else”. But that’s a false causal chain. If we accept his logic, no statistically measured phenomenon should be examined on its face. That’s patently ridiculous. Tail risk in financial markets is a statistically defined phenomenon too.

This Week in Poverty: Bigfoot, Nessie and Paul Ryan - “What’s really at work here is the spirit of the Lord,” would-be Vice President Paul Ryan said in a speech on poverty and upward mobility before conservative Ohioan churchgoers on Wednesday. “And there is no end to the good that it can inspire.” But apparently there is an end—because it can’t inspire anyone on the Republican ticket to deliver an honest speech about poverty. Sure, Ryan and Governor Romney repeatedly recite the number of people living in poverty or needing food stamps, using the statistics as a bludgeon against President Obama’s record. But beyond that? Bigfoot and Nessie got nothing on the myths these guys spin, and they are just about as fact-based. “In this war on poverty, poverty is winning,” Ryan declared. Except that poverty would be twice what it is today—nearly 30 percent—were it not for the safety net Ryan objects to.

Food stamps cause global depression ? -- I’d expect a professor at the University of Chicago to be aware that the USA is not the only country in the world. That’s not true, apparently, of Casey Mulligan, who claims that the continued weakness of employment in the US is due to policies introduced in 2008 and 2009, which ” greatly enhanced the help given to the poor and unemployed — from expansion of food-stamp eligibility to enlargement of food-stamp benefits to payment of unemployment bonuses — sharply eroding (and, in some cases, fully eliminating) the incentives for workers to seek and retain jobs, and for employers to create jobs or avoid layoffs.” Mulligan’s claims about US policy are dubious at best (see over fold), but there’s a much more critical problem with his argument. If US unemployment is caused, not by a demand shock but by the mistaken policies of the Obama Administration, why did unemployment move in the same way, and at the same time, in many different countries? Did Iceland expand its food stamp program? Does Estonia pay unemployment bonuses? Sadly, no. Responding more specifically to Mulligan’s claims, his suggested mechanisms don’t fit the data. As is usual in a recession, the period of eligibility for unemployment insurance was extended to a maximum of 99 weeks in the aftermath of the financial crisis. However, this extension has gradually been withdrawn, and an additional Federal benefit is due to expire at the end of this year. Yet the employment-population ratio has remained at low levels not seen for decades

Soup Kitchens Caused the Great Depression - Krugman - Some readers have been asking me to reply to Casey Mulligan’s latest attack on my recent book. Um, no. Life is short, and if I spent my time responding to every attack on yours truly — or indeed, every thing Mulligan himself writes that I consider foolish — I would have no time to do anything else. So let me just outsource this to John Quiggin. Now, Quiggin’s post takes on both Mulligan’s specifics and the broader claim that increased use of the social safety net is a cause rather than a result of the depressed economy. As one of his commenters points out, this amounts to the claim that soup kitchens caused the Great Depression. Quiggin does an admirable job of refuting this claim. I would, however, add one more point. If you really believe that the problem is that excessive generosity to the downtrodden is reducing the incentive to work, so that what we really have is a supply problem rather than a demand problem, you should expect to see upward pressure on wages. What we actually see:

For Years, Warnings That Storm Damage Could Ravage New York - For nearly a decade, scientists have told city and state officials that New York faces certain peril: rising sea levels, more frequent flooding and extreme weather patterns. The alarm bells grew louder after Tropical Storm Irene last year, when the city shut down its subway system and water rushed into the Rockaways and Lower Manhattan. On Tuesday, as New Yorkers woke up to submerged neighborhoods and water-soaked electrical equipment, officials took their first tentative steps toward considering major infrastructure changes that could protect the city’s fragile shores and eight million residents from repeated disastrous damage. Gov. Andrew M. Cuomo said the state should consider a levee system or storm surge barriers and face up to the inadequacy of the existing protections. “The construction of this city did not anticipate these kinds of situations. We are only a few feet above sea level,” Mr. Cuomo said during a radio interview. “As soon as you breach the sides of Manhattan, you now have a whole infrastructure under the city that fills — the subway system, the foundations for buildings,” and the World Trade Center site. The Cuomo administration plans talks with city and federal officials about how to proceed. The task could be daunting, given fiscal realities: storm surge barriers, the huge sea gates that some scientists say would be the best protection against floods, could cost as much as $10 billion. But many experts say, given what happened with the latest storm, that inertia could be more expensive.

Hurricane Sandy Aftermath Reveals Massive Inequality Gap in New York City - New York is slowly recovering from the damaging floodwaters and winds of Superstorm Sandy. And what we’re seeing in the aftermath is how the burden natural disasters invariably falls on the shoulders of those least equipped to cope. Nowithstanding the human interest stories about trying to find an outlet to charge cell phones, the real victims of this storm are old, disabled and/or poor. They represent the majority of those still without power. They live in the areas more likely to be inaccessible to rescue efforts. They are among the 250,000 trapped in the dark in Manhattan. They are the ones most at risk of disease and illness. As David Rohde writes, the storm exposed the yawning inequality gap in one of the richest cities in the world. Sandy humbled every one of the 19 million people in the New York City metropolitan area. But it humbled some more than others in an increasingly economically divided city [...] Those with a car could flee. Those with wealth could move into a hotel. Those with steady jobs could decline to come into work. But the city’s cooks, doormen, maintenance men, taxi drivers and maids left their loved ones at home. New census data shows that the city is the most economically divided it has been in a decade, according to the New York Times. As has occurred across the country, the rich are getting richer and the poor are getting poorer. Twenty-one percent of the city is in poverty, and the median household income decreased by $821 annually. Per the Times: “Median income for the lowest fifth was $8,844, down $463 from 2010. For the highest, it was $223,285, up $1,919.”

New York state asks Washington to cover all storm costs - New York state on Wednesday asked the U.S. federal government to pay all the costs of cleaning up and repairing damage from massive storm Sandy that tore through the Northeast this week and crippled New York City. Governor Andrew Cuomo said he is asking fellow Democrat, President Barack Obama, to pay 100 percent of the estimated $6 billion bill, at a time that state and local government budgets remain constrained by a weak economic recovery. That would be a significant change from last year when the federal government covered about 75 percent of the $1.2 billion cost paid by New York to clean up after storm Irene hit the region. The two U.S. senators from neighboring New Jersey, the other state hit hardest by the storm, also asked that the federal government cover more than the usual share of the cost, given the size of the disaster and the financially strapped local coffers.

Shock Doctrine, American-Style: Hurricane Sandy Devastation Used to Push for Sale of Public Infrastructure to Investors - As a result of fully warranted bad press for some privatization deals, such as the lease of Chicago’s parking meters, there has been a bit (stress only a bit) more critical scrutiny of the de facto sale of public assets to consortia of private investors. Nevertheless, major banks have been using the financial distress of states and municipalities to push these deals as a solution to budget woes, when it’s a short-term expedient that leaves the public worse off. One of the themes of Naomi Klein’s book The Shock Doctrine was that disasters, such as the explosion of government budget deficits as a result of the financial crisis, help powerful parties push through programs that would have been hard to sell in ordinary circumstances. An even more cynical version is starting. The wreckage from Hurricane Sandy hasn’t even been cleared, yet financial entrepreneurs are looking to profit from it. From Philly.com: Rebuilding the shattered Shore and the swamped New York tunnels, along with badly needed updates to the Northeast’s exhausted roads and rails, will be an opportunity to implement streamlined construction laws backed by Republicans and pro-business Democrats in Congress and the states, says Frank Rapoport, Berwyn-based partner at New York law firm McKenna Long & Aldridge L.L.P., and counselor to contractors who support “public-private partnerships” (P3).That’s a label for a group of strategies that replace lengthy government-led construction with private contractors and financiers, financed by “sharing” user fees – like road tolls – once the project is built, instead of borrowing money and charging taxpayers….

Sandy Aftermath and the Fragility of Complex Systems - Yves Smith - Even though the news media are generally focusing on the “progress is being made” aspects of the Hurricane Sandy aftermath (in large measure because that’s what officials are pushing), there is still a great deal of distress, as well as probable long-lingering problems that are not being acknowledged. We are going to keep following the story not so much because it’s in the area (although NYC and East Coast residents are overweighted in the NC readership) but because it’s an example of what happens when a complex system suffers serious damage. Sandy is serving as a laboratory for what we have in store as the population becomes every more urban and lives in bigger and bigger cities and those cities experience disasters. This is not a comprehensive list of current and possible persistent stresses; I welcome additional reader comments:

Did recession-era austerity make Frankenstorm worse? —Years of budget cuts and financial fraud may have hindered New York City’s ability to defend itself against Hurricane Sandy. Despite a mad rush to brace for the storm, crucial components of the city’s infrastructure—notably its hospitals and transit system—were unequipped to deal with the impact of this massive hurricane. Power outages at New York University Tisch Hospital and Coney Island Hospital forced first responders to relocate their patients to other hospitals. New York City’s subway system, on the other hand, was left entirely incapacitated. It was completely shut down Sunday evening through Wednesday with limited service expected to return Thursday. “The New York City subway system is 108 years old, but it has never faced a disaster as devastating as what we experienced last night,” Metropolitan Transit Authority Chairman Joe Lhota said in a statement. Despite some modest flood-mitigating overhauls which the MTA has made in the last few years, the subway system was completely unprepared for a weather event of Sandy’s magnitude. Like other municipalities around the country, New York’s city and state governments have had to cut back on spending to deal with their post-economic collapse revenue drops. According to the Center on Budget and Policy Priorities, states across the country faced serious budget shortfalls after the financial crisis because of “weak tax collection” and insufficient federal aid. In New York, the shortfall made up 18.2% of the state’s entire budget for fiscal year 2012. To help close that gap, Governor Andrew Cuomo and Mayor Michael Bloomberg have been digging deep, with Bloomberg alone proposing $1.5 billion in spending reductions at the beginning of 2012.

‘Hurricane Deductible’: Technicality Could Cost (or Save) Homeowners Thousands - Homeowners whose properties were damaged by Hurricane Sandy probably don’t care much about exactly how fast the storm’s winds blew. All they know is that it was strong enough to knock a tree down on the roof. But due to the fine print of insurance policies, the precise speed of the wind could mean a difference of tens of thousands of dollars to many homeowners. As the devastating effects of Hurricane Sandy became apparent early this week, thoughts naturally turned to cleaning up the mess. For affected residents, this often meant figuring out how their homeowner’s insurance would cover damage to their properties. With most policies, there is a deductible, usually $500 or $1,000, which a homeowner must pay before insurance covers the rest. But CNN Money, MoneyWatch, and others have recently highlighted the fact that a “hurricane deductible” provision can wind up costing a homeowner much more. In states where such deductibles are allowed—including New York, New Jersey, Connecticut, and most of the East Coast—a homeowner may be required to pay 1%, 5%, perhaps even as much as 10% (in Florida) of their property’s value before the insurer coughs up a single penny.

What Good Is a Gas Station (Or a Generator) If Gas Can’t Be Pumped? - Thankfully, Hurricane Sandy isn’t expected to bring about spiking prices at gas stations. In hard-hit areas, though, the Frankenstorm brought about an even more aggravating situation: It’s made it nearly impossible to buy gasoline period. For obvious reasons, generators have been hot sellers in recent days—since the historic storm-related power outages of summer 2011, really. Lately, some consumers who thought they were being prudent by planning ahead are finding out there’s little more frustrating than having a generator but not being able to find fuel to power it. In New Jersey, reports Reuters, about half of homes and businesses are without power, while about 80% of gas stations aren’t selling gas—because they’ve run out, or they’re also without power. The story is similar in Long Island, where roughly half of gas stations were open on Wednesday. “I have gas in the ground but no power,” Kevin Beyer, president of the Long Island Gasoline Retailers Association, told Reuters. “For many others they’re facing the opposite problem, with power but no gasoline. For the few stations that are lucky enough to have both they’ve got huge lines out front.”

Gas Shortage Crippling Sandy Aid From Food Banks And Charities - At 3 p.m. on the Friday after Hurricane Sandy hit New York City, the St. Jacobi church in Sunset Park, Brooklyn, was overflowing with boxes of water bottles, piles of clothes and volunteers baking bread pudding. The mood was busy and hopeful as 350 people helped sort donations from across Brooklyn to be sent out to neighborhoods like Staten Island and Far Rockaway that were devastated by the storm. But one key element was missing: gasoline. All over New York City, the story was the same. Thursday, a deadly cocktail of mass power outages, port closures and skyrocketing demand for fuel shut down gas stations across New York and New Jersey, spurring mile-long lines and fights at the few pumps that remained open. Now, the shortage is crippling aid organizations spearheading relief in devastated areas. While some national organizations like the Red Cross have managed to secure fuel, many local charities are using vehicles running on empty. Without gas, basic necessities like flashlights, clothing, food and water can't make it to people whose entire lives were wiped out by the storm.

Blackout Backlash Builds as Sandy Slow Recovery Drags Out - About 570,000 Con Edison customers were without power as of 11:48 a.m., the New York-based utility reported on its website. About 131,000 of those are in Westchester County, where blocked roads have delayed repairs, according to the company. New York Governor Andrew Cuomo threatened to revoke the operating certificates of any utilities whose recovery efforts fall short. Power companies had plenty of time to prepare for the storm, the governor said in a letter yesterday to executives at all of the seven utilities operating in New York. “We knew this storm was coming, we went through this with Irene,” Cuomo said at a press conference today. “There was no great shock.” Management Accountability Cuomo’s letter singled out the Long Island Power Authority, which was investigated for its response to Irene. Another failure by the utility “would warrant the removal of the management responsible for such colossal misjudgments,” he wrote. The utility reported 535,760 customers without power as of about 11:49 a.m. Rebuilding a grid battered by wind and flood, critical to restoring transportation, employment and basic comforts to a region of 50 million people, is a top priority for President Barack Obama’s administration, state officials and utilities tarnished by their slow response to three recent major storms, including Irene.

New Jersey Gas Rationing Begins - Gas Rationing Begins Saturday In 12 Counties. License plates ending in an odd number can get gas on odd numbered days, while plates ending in an even number can get gas on even numbered days. A system of gas dispensation is to begin Saturday, Nov. 3 to combat long lines at the pump in 12 counties throughout the state. According to a release from the Governor’s Office, citizens of the following counties are now limited on the days in which they can fill up their gas tanks, as per the state Office of Emergency Management: Bergen, Essex, Hudson, Hunterdon, Middlesex, Morris, Monmouth, Passaic, Somerset, Sussex, Union, and Warren. According to the state, plates ending in an even number can fill up on even numbered days of the month, while plates ending in an odd number can fill up on odd numbered days of the month.

Hurricane Sandy: Recovery - Hurricane Sandy battered the mid-Atlantic region with powerful gusts and storm surges that cause epic flooding in the coastal communities of New Jersey, New York and Connecticut, knocking down trees and power lines and leaving more than eight million people – including large parts of Manhattan – in the rain-soaked dark. The mammoth storm packed maximum sustained winds of 80 mph. Those powerful winds, driving rain and storm surge are blamed for 98 deaths in the United States (although numbers still vary), including two small boys who were swept out of their mother’s arms. The toll of the storm is staggering, including a rampaging fire that reduced more than 100 houses to ash in Breezy Point, Queens. New Jersey took the brunt, officials estimating that the state suffered many billions of dollars in property damage. Residents began the long, slow process of recovery. – Paula Nelson ( 46 photos total)

Military to Deliver Fuel to Storm-Ravaged Region - As long lines persisted at gas stations in the New York metropolitan area, federal authorities moved on Friday to restore supplies, instructing the Defense Department to send 24 million gallons of fuel to the region and lifting restrictions on deliveries by foreign-flagged ships. With the reopening of the Port of New York to tankers on Thursday, and the return of a critical Northeast fuel pipeline to full capacity on Friday, the biggest outstanding problems are the lack of power at hundreds of gas stations and continued panic buying by the public, industry officials said. Because electricity will not be restored in parts of central New Jersey for seven to 10 days, gasoline shortages may remain severe in some areas. As of Friday, according to AAA, only 40 to 50 percent of the gas stations in New York City and New Jersey were operating, and even fewer were operating on Long Island. Most of the stations were out of service because of power failures.

As cold snap looms, Sandy sets NY up for a new fuel crisis - A cold snap in the New York City area - with daily low temperatures set to drop into the upper 30s Fahrenheit (2-4 degrees Celsius) early next week - is raising concerns that residents of the storm-stricken areas of New York, New Jersey or Connecticut could be left without heat as they recover from one of the worst storms in U.S. history. Some New York area heating oil distributors have already been forced to ration supplies. The fuel is used in nearly 5.8 million homes in the Northeast, the world's largest heating oil market. In some storm hit areas, distribution has nearly collapsed. Heating oil is usually dispatched in fleets of tanker trucks to boiler rooms in thousands of residential buildings and businesses. But on Friday, supplies were dwindling at many distribution centers in New York City and parts of New Jersey. In addition, nearly 3.5 million homes and business were without power on Friday along the East Coast. While that number will likely diminish by next week, those without power that use heating oil will have limited options to stave off the cold. Government attempts to alleviate the shortage by releasing strategic reserves of heating oil are unlikely to provide much relief, given the scope of the problem facing distributors.

Facing deficits, L.A. Council moves forward with proposed tax hikes - The Los Angeles City Council moved forward with four proposed tax increases on Wednesday, instructing city lawyers to draw up the language for ballot measures that would raise property, real estate, parking and sales taxes. Council President Herb Wesson said he hopes only one of those proposed increases ends up on the ballot in March. He is pushing for the half-cent sales tax hike, which would generate an estimated $220 million in new revenue for the financially strapped city. Wesson said he asked the council to move forward with each of the ballot measures as a safe guard. He said results of Tuesday’s election, when voters in three dozen California cities will consider their own sales tax increases, will allow Los Angeles to gauge voter opinion on local sales tax hikes.

Tenn. has 74 percent increase in homeless students - Tennessee saw the number of homeless public school students increase by 74 percent between 2007 and 2010. That number was well above the national average of 38 percent, but the true number may be even higher. According to a report from the state Comptroller's office, several neighboring states have a larger percentage of homeless students. That could be a clue that Tennessee's numbers are an undercount. Also, some districts in Tennessee with high foreclosure and jobless rates did not identify any homeless students. The comptroller's report says the dramatic increases in Tennessee — from 6,565 in 2007 to 11,458 in 2010 — may be a consequence of job losses and the economy. They may also be the result of some school districts' improved efforts to identify homeless students.

Does year-round schooling matter? - Some new research says no. Steven C. McMullen and Kathryn E. Rouse, from their piece ”The Impact of Year-Round Schooling on Academic Achievement: Evidence from Mandatory School Calendar Conversions,” in The American Economic Journal, report: In 2007, 22 Wake County, North Carolina traditional calendar schools were switched to year-round calendars, spreading the 180 instructional days evenly across the year. This paper presents a human capital model to illustrate the conditions under which these calendars might affect achievement. We then exploit the natural experiment to evaluate the impact of year-round schooling on student achievement using a multi-level fixed effects model. Results suggest that year-round schooling has essentially no impact on academic achievement of the average student. Moreover, when the data are broken out by race, we find no evidence that any racial subgroup benefits from year-round schooling. There is an ungated version here.

Answer: Yes, Teachers Are Being Hired - In a post on Thursday, I asked whether the erosion of teaching jobs in public schools was coming to an end. The October jobs report, just out, has an answer: teachers are finally being hired. The October report says state and local governments had 10,749,500 workers in education during the survey week. That was up 89,500 from the previous October, making this the first year in the last four to show an increase. The figure is still 123,200 short of the October 2008 total, even though the school-age population has been rising.

M.B.A.s Rethink Wall Street - Repeated cutbacks have dulled Wall Street's luster for some prospective Masters of the Universe, in the latest reflection of the gloom overhanging the finance industry. Many of the nation's top M.B.A. programs, including Harvard Business School and Stanford Graduate School of Business, reported declines in the share of students who took jobs in finance this year. And even those that posted some gains, such as University of Pennsylvania's Wharton School, are still well below their prefinancial crisis levels. Those schools traditionally serve as feeders for companies such as Morgan Stanley,Goldman Sachs and J.P. Morgan Chase, many of which are expecting young talent to keep them afloat as they navigate a tightly regulated, profit-pressured future. One factor affecting student demand: Banks expect young staffers to pick up the slack left by masses of laid-off midlevel employees, without necessarily offering more generous pay packages in return for the long hours. At Harvard Business School, for example, students heading into investment banking—7% of job seekers who accepted jobs, down from 10% in 2011—reported median salaries and signing bonuses were flat with last year, at $100,000 and $40,000, respectively, while other guaranteed compensation fell to $8,750 from $40,000.

School Pension Costs To Skyrocket Nearly 40 Percent -- Pension costs for schools are set to grow nearly 40 percent next school year, a major hit to education budgets already crippled by rising costs. The state Teacher's Retirement System estimated that schools would have to pay as much as 16.5 percent of payroll to cover pension costs, according to a bulletin released earlier this month. The current rate is 11.84 percent. The system said higher pension costs are expected in future years. The system said the rate for the 2013-14 school year, which starts July 1, would be between 15.5 percent and 16.5 percent of salary. "We anticipate future increases in the (employer contribution rate). The magnitude of the increases will depend upon future investment performance and member demographic experience," the bulletin to school districts read. School officials said the increase comes as other costs are growing, such as health insurance for employees. Schools are also grappling with a property-tax cap that limits the growth in taxes to 2 percent a year; an override of the cap requires 60 percent of support from voters in May.

Illinois Teachers’ Retirement System bleeding out, experts say - Illinois’ teacher pension system could go broke if the state does not figure out a way to fully fund the system soon, the leader of the retirement system and others have warned again. Illinois’ Teachers’ Retirement System is seeking $3.4 billion from the state for its portion of the pension costs for fiscal year 2014. That’s about $500 million more than the system sought from the state for the previous fiscal year. “TRS faces the real risk of future insolvency because of insufficient state funding over the last 30 years,” said Dick Ingram, executive director of the Teachers’ Retirement System, who previously has made the same dire prediction. “TRS absolutely will be able to meet its obligations to retired teachers in the near future, but we cannot guarantee retirement security for future generations of teachers unless the state meets its total obligations.” TRS calculates the state’s annual funding contribution based on a formula designed by the state in 1995, and the system reports the required funding amount to the state every year in October.

By One Measure, At Least, We’re All Better Off Than We Were 4 Years Ago - Are you better off than you were four years ago? It’s a popular question at election time, and many Americans say they are not. But before you decide, though, it may be worth taking a close look your 401(k) account. Balances in company-sponsored retirement plans are up in all 50 states over the three years ending in 2011, according to a new report. The median gain was 25%, though results varied widely by state. In Mississippi, the typical gain was more than 80%, while balances in Arkansas grew by just 1%, according to the report by FutureAdvisor, an investment firm. The authors assert: “It’s important to note that when looking at diverse economic conditions across all 50 states, the fact that balances at retirement accounts improved in all 50 states is a strong indication of strong upward momentum nationwide.”

How Retirement Age Tracks Social Security's Rules -Back in 1983, as one of the steps taken to bolster the long-run finances of the Social Security System, was to phase in a rise in the "normal" or "full" retirement age. The normal retirement age for receiving full Social Security benefits had been 65, with "early retirement" with lower benefits possible at age 62. Under the new rules, the normal retirement age remained 65 for those born in 1937 or earlier--and thus turning 65 before 2002. It then phased up by 2 months per year, so that for those born six years later in 1943 or after, the normal retirement age is now 66. Written into law is a follow-up increase where a rise in the normal retirement age from 66 to 67 will be phased in, again at a rate of two months per year, for those born from 1955 to 1960. How has this change altered actual retirement patterns? What are the reasons, either for retirees or for the finances of Social Security, to encourage still-later retirement? Economists have long recognized that what a government designates as the "normal" retirement age has a big effect on when people actually choose to retire. Consider the following graphs from Behaghel and Blau. Each one is for those born in a different year, from 1937 up through 1942, as the normal retirement age phased up. These people are the ones hitting the normal retirement age of 65 in the early and mid-2000s. The solid line shows the probability of retirement at each age. The early retirement age of 62 is marked with a vertical red line; the previous normal retirement age of 65 is marked with a vertical red line; and the actual retirement age for that year as it phases up two months per year is marked with a vertical red line. The dashed line, which is the same in all the figures, shows for comparison the retirement pattern for those born over the 1931-1936 period.

Why Big Bucks Donors Don't Want President Obama to Champion Social Security -- Dean Baker - It is remarkable that social security hasn't been a more prominent issue in the presidential race. After all, Governor Romney has proposed a plan that would imply cuts of more than 40% for middle-class workers just entering the labor force . Since social security is hugely popular across the political spectrum, it would seem that President Obama could gain an enormous advantage by clearly proclaiming his support for the program. But President Obama has consistently refused to rise to the defense of social security. In fact, in the first debate, he explicitly took the issue off the table, telling the American people that there is not much difference between his position on social security and Romney's. On its face, this is difficult to understand. In addition to being good politics, there are also solid policy grounds for defending social security. The social security system is perhaps the greatest success story of any program in US history. By providing a core retirement income, it has lifted tens of millions of retirees and their families out of poverty. It also provides disability insurance to almost the entire workforce. The amount of fraud in the system is minimal, and the administrative costs are less than one 20th as large as the costs of private-sector insurers. The story here is a simple one: while social security may enjoy overwhelming support across the political spectrum, it does not poll nearly as well among the wealthy people – who finance political campaigns and own major news outlets. The predominant philosophy among this group is that a dollar in a workers' pocket is a dollar that could be in a rich person's pocket – and these people see social security putting lots of dollars in the pockets of people who are not rich.

Romney's Regressive Plan for Social Security - Via email: The Best Political Case Against Romney (Which Obama Hasn't Made): Probably the election's biggest shocker is the Obama campaign's virtual silence on what is Democrats' single best issue and, as this Bloomberg piece explains, the clearest proof that Romney's agenda puts the wealthy over the middle class.Bloomberg explains that Romney's Social Security plan puts 10 times the burden on the middle class than it does on the rich. While all the focus has been on explicit tax bills, Romney's Social Security plan is like a $1,000 tax hike for a $45k/year worker, or 2.3% of wages. That's 10 times the implicit 0.23% tax hike for a $1 million earner.This goes a long way to explaining why Romney is leading on the economy; Obama has been so focused on the invisible parts of Romney's agenda, he has never pointed out the smoking guns that would have -- and still can -- destroy Romney's credibility as an advocate for the middle class.

Medicaid on the Ballot, by Paul Krugman -There’s a lot we don’t know about what Mitt Romney would do if he won. But one thing is clear: If he wins, Medicaid will face savage cuts. Estimates suggest that a Romney victory would deny health insurance to about 45 million people who would have coverage if he lost, with two-thirds of that difference due to the assault on Medicaid. Medicaid is generally viewed as health care for the nonelderly poor... For those who get coverage through the program, Medicaid is a much-needed form of financial aid. It is also, quite literally, a lifesaver. Mr. Romney has said that a lack of health insurance doesn’t kill people in America; oh yes, it does, and states that expand Medicaid coverage show striking drops in mortality. So Medicaid does a vast amount of good. But at what cost? There’s a widespread perception, gleefully fed by right-wing politicians and propagandists, that Medicaid has “runaway” costs. But the truth is just the opposite. ... Medicaid is significantly better at controlling costs than the rest of our health care system. ... Is Medicaid perfect? Of course not. Most notably, the hard bargain it drives with health providers means that quite a few doctors are reluctant to see Medicaid patients. Yet given the problems facing American health care — sharply rising costs and declining private-sector coverage — Medicaid has to be regarded as a highly successful program. It provides good if not great coverage to tens of millions of people who would otherwise be left out in the cold, and as I said, it does much right to keep costs down.

Analysis: Employees to face healthcare sticker shock (Reuters) - Visit to New York City orthopedist: $223. One X-ray: $50. One follow-up magnetic resonance imaging test: $766. Total bill for checking out that aching shoulder: $1,039 - all to be paid by the patient, rather than the insurer. Healthcare has gone retail. Over the next 18 months, between one quarter and one half of Americans who get insurance coverage through their employers will pay more of their doctor bills themselves as companies roll out healthcare plans with higher deductibles, benefits consultants say. The result: sticker shock. "They have huge out-of-pocket costs before they get any insurance coverage, it's a real slap in the face," said Ron Pollack, the executive director of Families USA, a healthcare advocacy group. High-deductible plans set a threshold for medical expenses that an individual must pay for, often in the thousands of dollars, before insurance kicks in. Studies show people on these plans are three times more likely to delay or skip care than people on traditional plans, where doctor or emergency room visits are covered by a relatively low co-payment. These plans have been around for years, pushed by employers, insurers and industry experts who believe that consumers with "skin in the game" will drive demand for better quality care at a lower cost. It is a rationale also backed by Republican challenger Mitt Romney.

Health law has saved seniors $4.8 billion on Rx drugs, HHS says - Seniors have saved nearly $5 billion on prescription drugs because of President Obama's healthcare law, the Health and Human Services Department said Thursday. HHS regularly touts the savings seniors have seen from new discounts on prescription drugs, and the latest update comes just two weeks from a presidential election in which healthcare — and Medicare in particular — loom large. The Affordable Care Act gradually closes the Medicare "doughnut hole" — a coverage gap in which seniors have to pay for their drugs entirely out of pocket. Drug makers also agreed to offer deep discounts to Medicare recipients. So far, seniors have saved $4.8 billion on their prescriptions, HHS said. The department said 5.6 million seniors have received a drug discount or rebate, including 2.3 million this year. Seniors who hit the doughnut hole have saved an average of $657 this year. The health law has also bolstered preventive medicine, HHS said. Medicare now covers many preventive services without a co-pay or other cost-sharing for seniors. HHS said nearly 21 million seniors have received at least one preventive service this year without facing out-of-pocket costs.

Breast cancer screening causes more damage than previously thought - Breast cancer screening causes more harm than has previously been recognised, even though it saves lives, according to an independent review set up following years of scientific controversy surrounding the NHS programme. Around 1,300 lives are saved every year by mammography, which women are invited to undergo between the ages of 50 to 70, said the review, which recommends that screenings should continue. But 4,000 women will undergo unnecessary treatment, including surgery, radiotherapy and chemotherapy, for a cancer they would not otherwise have known about and which would have done them no harm in their lifetime. Some breast cancers are so tiny and slow growing that they would never be a threat to a woman's health, the review says.

NYC Science Stunned by Sandy - Flooding and blackouts caused by super storm Sandy have had a devastating impact on scores of scientists in the Big Apple, with one research center losing thousands of lab mice as well as precious reagents—a situation that could set some researchers back years. At New York University’s Smilow Research Center, on the eastern edge of Manhattan, which lost power shortly after Sandy struck on Monday night, hundreds of biological samples were destroyed as freezers thawed and refrigerators warmed. And as animal care facilities in the basement flooded, hundreds of mice and rats were killed—animals that had been painstakingly genetically engineered for use as disease models. “Animal resource staff was on site continuously to mitigate the damage from the storm, but due to the speed and force of the surge, animal rescue attempts were unsuccessful," NYU officials said in a statement released on Wednesday (October 31). "We are deeply saddened by the loss of these animals' lives and the impact this has on the many years of important work conducted by our researchers.”

How Hurricane Sandy destroyed years of medical research - As Hurricane Sandy flooded Lower Manhattan, the staff at New York University's Langone Medical Center rushed to evacuate 300 patients. At another NYU facility, the Smilow Research Building, thousands of lab mice drowned as the storm surge filled the basement with water. Many tissue samples and other specimens also were lost. "It's so horrible, you don't even want to think about it," said Michelle Krogsgaard, a cancer biologist. "All the work we did, all the time and money, we're going to have to start all over." What kinds of research were lost in the storm? Here, a brief guide:The mice were inundated. Other cells, tissues, and animals used for medical research died slowly in idle refrigerators, freezers, and incubators. Precious enzymes, antibodies, and DNA strands generated by scientists and stored at temperatures as cold as -80 degrees were also almost surely destroyed. The facility houses labs dedicated to research on heart disease, neurodegeneration, and cancer. Some scientists doing doctoral or post-doc research may have been several years into a five- or six-year program, and may have to essentially start over from square one. Some of the mice that were lost had been genetically engineered for use studying melanoma and other diseases, and it could take several years of careful breeding to rebuild the colony. Researchers have to identify a gene to be studied, inject the altered gene into mouse blastocysts, and make sure the offspring can pass the traits along to following generations. "Some mice are unique, they're just made for certain research," one non-NYU researcher said, and there's no way to replace them without starting from scratch.

Why I Am Pro-Life - In my world, you don’t get to call yourself “pro-life” and be against common-sense gun control — like banning public access to the kind of semiautomatic assault rifle, designed for warfare, that was used recently in a Colorado theater. You don’t get to call yourself “pro-life” and want to shut down the Environmental Protection Agency, which ensures clean air and clean water, prevents childhood asthma, preserves biodiversity and combats climate change that could disrupt every life on the planet. You don’t get to call yourself “pro-life” and oppose programs like Head Start that provide basic education, health and nutrition for the most disadvantaged children. You can call yourself a “pro-conception-to-birth, indifferent-to-life conservative.” I will never refer to someone who pickets Planned Parenthood but lobbies against common-sense gun laws as “pro-life.” “Pro-life” can mean only one thing: “respect for the sanctity of life.” And there is no way that respect for the sanctity of life can mean we are obligated to protect every fertilized egg in a woman’s body, no matter how that egg got fertilized, but we are not obligated to protect every living person from being shot with a concealed automatic weapon. I have no respect for someone who relies on voodoo science to declare that a woman’s body can distinguish a “legitimate” rape, but then declares — when 99 percent of all climate scientists conclude that climate change poses a danger to the sanctity of all life on the planet — that global warming is just a hoax.

Chilling Brain Scans Show the Impact of a Mother’s Love on a Child’s Brain Size - The chilling images reveal that the left brain, which belongs to a normal 3-year-old, is significantly larger and contains fewer spots and dark "fuzzy" areas than the right brain, which belongs to that of a 3-year-old who has suffered extreme neglect. Neurologists say that the latest images provide more evidence that the way children are treated in their early years is important not only for the child's emotional development, but also in determining the size of their brains. While at first glance, the images might indicate that the child with the right brain might have suffered a serious accident or illness, neurologists said that the truth is that the child with the shrunken brain was neglected and abused by its mother, and the child with the larger and more fully developed brain was raised in a loving, supportive home and was looked after by its mother, according to The Sunday Telegraph.

Have India’s poor become human guinea pigs? - Drug companies are facing mounting pressure to investigate reports that new medicines are being tested on some of the poorest people in India without their knowledge. "We were surprised," "We are low-caste people and normally when we go to the hospital we are given a five-rupee voucher, but the doctor said he would give us a foreign drug costing 125,000 rupees (£1,400)." The pair had gone to the hospital, located in the biggest city in Madhya Pradesh, an impoverished province in central India, because Mrs Bai was experiencing chest pains. Their status as Dalits - the bottom of the Hindu caste system, once known as untouchables - meant that they were both accustomed to going to the back of the queue when they arrived and waiting many hours before seeing a doctor. But this time it was different and they were seen immediately. "The doctor took the five-rupee voucher given to BLPs [Below the Poverty Line] like us and said the rest would be paid for by a special government fund for poor people," Mrs Sodey explains. "This was really expensive treatment for the likes of us." What Mrs Sodey says she did not know was that her mother-in-law was being enrolled in a drugs trial for the drug Tonapofylline, which was being tested by Biogen Idec. Neither could read and Mrs Sodey says she does not remember signing a consent form.

Do Bayer's Pesticides Make Worker Bees Lazy? - Corn prices remain quite high, driven up by the summer's prolonged drought. And since the United States is by far the globe's largest corn producer, prices will likely stay high until the next bumper crop in the Midwest replenishes global corn reserves. To take advantage of high prices, US farmers will likely plant a whole lot of corn in spring 2013—at least as much as they did in 2012, which marked a 75-year high in corn acreage. And that could be bad news for bees, commercial honey-producing ones and wild bumblebees alike, both of which have experienced severe declines in recent years. What does the health of bees have to do with the corn crop? A growing weight of evidence links a class of pesticides called neonicotinoids, which are used on nearly the entire US corn crop, to declining bee health. In March, I looked at three studies that had just been released, two of them published in the prestigious journal Science, making the link. Those papers came on the heels of a damning one from Purdue University researchers (which I discussed here). And now comes yet another, this one (abstract; I have the full study but can't upload it because of copyright issues) published by UK researchers in another prestigious publication, the British journal Nature.

Climate change adding sting to mosquito bite, says WHO report - The warning is ominous — climate change and global warming will make vector-borne diseases like dengue and malaria - already causing havoc in the country more lethal. A landmark report on climate change and health, published by the World Health Organization on Monday, said that in the last 100 years, the world has warmed by approximately 0.75 degree Celsius. Over the last 25 years, the rate of global warming has accelerated, at over 0.18 degree Celsius per decade. Global health will suffer a loss of $2 billion-$4 billion per year by 2030 due to climate change."Many of the major killers such as diarrhoeal diseases, malnutrition, malaria and dengue are highly climate-sensitive and are expected to worsen as the climate changes," said WHO. It added, "Malaria is strongly influenced by climate. Transmitted by Anopheles mosquitoes, malaria kills almost one million people every year. The Aedes mosquito vector of dengue is also highly sensitive to climate conditions. Studies suggest that climate change could expose an additional 2 billion people to dengue transmission by the 2080s."

Bananas could replace potatoes in warming world: Climate change could lead to crops from the banana family becoming a critical food source for millions of people, a new report says. Researchers from the CGIAR agricultural partnership say the fruit might replace potatoes in some developing countries. Cassava and the little-known cowpea plant could be much more important food crops as temperatures rise. People will have to adapt to new and varied menus as traditional crops struggle, say the authors. Responding to a request from the United Nations' committee on world food security, a group of experts in the field looked at the projected effects of climate change on 22 of the world's most important agricultural commodities. Blooming bananas They predict that the world's three biggest crops in terms of calories provided - maize, rice and wheat - will decrease in many developing countries. They suggest that the potato, which grows best in cooler climates, could also suffer as temperatures increase and weather becomes more volatile. The authors argue that these changes "could provide an opening for cultivating certain varieties of bananas" at higher altitudes, even in those places that currently grow potatoes.

Futures market: Wall Street's thirst for water -These days, the biggest profits do not come from buying or selling actual things (such as houses or wheat or cars), but from the manipulation of ethereal concepts like risk and collateralized debt. Wealth flows from financial instruments that are one step away from reality. Investing in a water index is now more popular than ever. There are more than 100 indices3 that track and measure the value of stocks of companies in water-related businesses, such as utilities, sewage treatment and desalination. Several offer healthy returns (see go.nature.com/zrl4qo). As a result, the World Bank and the International Monetary Fund — both always on the lookout for market-based security for the billions of dollars of credit they extend — have been pushing countries to privatize their resources. These include the lakes, streams and reservoirs of Argentina, Bolivia, Ghana, Mexico, Malaysia, Nigeria and the Philippines (see, for example, go.nature.com/iuwp8m). What better guarantee of prosperity than a rush of multinationals determined to generate revenues from something no one can manage without? So this summer, as cornfields from Ukraine to Kansas withered, as bacon shortages made headlines and dairymen fed candy to their cows, a new message congealed: the world's next great commodity will not be gold or grain or oil. It will be water. Useable water. Although collecting stakes in indices of publicly traded companies is nice, and water certainly generates predictable profits, wouldn't it be more efficient if it could be translated into a cash equivalent? Perhaps, plotted the hedgers and speculators, there should be a commodity market in water, as there is for gold and grain — a futures exchange in which assurances to deliver or accept water on some specified future date can be traded like cash.

India Puts GM Food Crops Under Microscope - Environmental activists are cautiously optimistic that a call by a court-appointed technical committee for a ten-year moratorium on open field trials of genetically modified (GM) crops will shelve plans to introduce bio-engineered foods in this largely agricultural country. A court-appointed committee in India has called for a ten-year moratorium on field trials of GM crops. “We are now waiting to see whether the Supreme Court will accept the recommendations of its own committee at the next hearing on Oct. 29,” said Devinder Sharma, chairman of the Forum for Biotechnology and Food Security, a collective of agriculture scientists, economists, biotechnologists, farmers and environmentalists. The committee – appointed in May to examine questions of safety raised in a petition filed by environmental activist Aruna Rodrigues – pointed to serious gaps in India’s present regulatory framework for GM crops in an interim report released on Oct. 18. In particular, the committee was asked to look at open field trials of food crops spliced with genes taken from the soil bacterium Bacillus thurigiensis (Bt), an insecticide whose impact on human health is unknown.

Cheese Smuggling Brings To A Head Problematic Canadian Dairy Policy: Police recently arrested three men, including one current and one former police officer, as part of a massive cheese-smuggling ring. The perpetrators allegedly smuggled cheese across the Canada-U.S. border and sold it to Canadian restaurants at a six-figure profit. This sounds like the plot of a bad movie. It’s not. It’s the result of Canada’s long-standing dairy policy. In contrast to other food products in which the market sets prices, Canada has an almost forty-year government policy of “dairy supply management”. In essence, the system limits milk production and keeps dairy imports out, in order to provide producers with higher milk prices. The system is riddled with complexities and idiosyncracies. To top their pizzas, restaurants buy “white gold” (mozzarella cheese) that is made from milk that costs cheese processors at least two times more than the same raw milk used to make other dairy products.What about cheaper imports that undercut domestic production and prices? Ottawa has rules to keep them out. For example, only one-twentieth of Canadians’ cheese consumption is allowed in; the rest is subject to a 246% tariff (see chart). We allow in even less yogurt and other dairy products.

Argentine storms seen cutting corn crop by 20 percent and soybean crop by 10 percent - (Reuters) - Argentina could lose 20 percent of its projected corn crop and 10 percent of its soy this season because of violent storms that have lashed the Pampas farm belt over the last three months, a local expert said on Tuesday. Consumer nations hope South American breadbaskets Argentina and Brazil will step in with enough grain supplies to soften prices squeezed higher this year by yield-killing droughts in Russia and the United States. But Argentina, the world's No. 3 soybean exporter and No. 2 corn supplier, has been swamped by unusually heavy rains since August. Pampas topsoils, barely recovered from a December-January drought that decimated 2011/12 crops, have been reduced in some areas to unplantable mush. The U.S. Department of Agriculture expects Argentina to harvest 55 million tonnes of soy and 28 million tonnes of corn in the 2012/13 crop year. "Given all the hail, rain, waterlogging and flooding we've seen, some corn fields will be lost. Others can still be replanted, but with uncertain results," said

Consumers, farmers squeezed as grain giants tighten grip - The global race for grain trading power is putting more of the world's vital cereals in the hands of fewer companies, with a string of recent acquisitions raising fears that consumers will pay even more for their food, while farmers are squeezed. Archer Daniels Midland last week bid for Australia's last independent grain handler GrainCorp, the latest in a series of moves by grain trading heavyweights to grab a larger slice of a booming market as developing economies seek food security. The four "ABCD" firms - ADM, Bunge , Cargill and Louis Dreyfus - dominate global grain trading along with top global commodities trader Glencore and Japan 's Marubeni , both of which have made major acquisitions in the last few months. With food price volatility increasingly coming to the fore, most recently in the wake of drought in the U.S. and other key producing regions, concern is growing among importers about extra upward pressure on prices. "The increasing concentration of power in the global grain market is not healthy. This will lead to grain prices being controlled by top trading companies," said Rusman Heriawan, deputy agriculture minister of Indonesia, Asia's top wheat importer.

What happens to non-ethanol corn - What happens with all the corn that is not used for ethanol? Many think it's used to make cereal and corn chips. But that turns out to be only 14% of all the non-ethanol corn usage. The biggest portion by far (36%) is used to make high-fructose corn syrup (HFCS). And much of HFCS is used for carbonated soft drink manufacturing. That means we should see soda prices in the supermarket continue to rise - which may be a good thing in terms of consumer health. Here are all the non-ethanol uses of corn.

Theme Issue Overview: What Happens When the Well Goes Dry? And Other Agricultural Disasters - According to the U.S. Drought Monitor (Figure 1), as of August 14, 2012, 62% of the contiguous United States was experiencing some form of drought, more than one third of which was classified as extreme or exceptional. Most of the extreme or exceptional drought is located in America’s breadbasket: Oklahoma, Kansas, Nebraska, Iowa, Missouri, Arkansas, Illinois, Kentucky and Indiana. Georgia is also experiencing vast areas of exceptional drought. These conditions directly affect agriculture with the combination of above average temperatures and below average precipitation making it difficult to cultivate and sustain crops and graze livestock. The short-run results are crop failure for farmers and increased feed costs and reduced weight gain for ranchers. Drought-induced shortages of corn will likely drive up food costs in the not so distant future. Additional longer-term impacts from the drought include:

increased reforestation costs due to lost saplings, wildfire, and vulnerability to disease and pests;

reduced productivity of pastures to produce hay;

decreased livestock births and thus slower herd growth;

and increased transportation costs on navigable waterways due to increased dredging and reduced barge capacity.

Add to these the compounding effects from multiyear drought conditions, as in Oklahoma, Arkansas and Texas, and the impacts are likely to be more severe.

How Economic Inequality Makes Hurricanes More Deadly -While the Eastern seaboard braces for Hurricane Sandy, 65 people have already been killed by the storm in the Caribbean. The tragic death toll and accompanying widespread property damage are caused in part by poor infrastructure and poverty — problems that aren’t limited to the Caribbean. Indeed, America’s inequality problem is a key reason why natural disasters wreak such havoc inside the United States. That our stratified society makes storms more deadly is nearly universally believed by disaster experts. According to a paper by three experts at the University of South Carolina, “[t]here is a general consensus within the social science community” that some key causes of vulnerability to storms include “lack of access to resources (including information, knowledge, and technology); limited access to political power and representation; social capital, including social networks and connections; beliefs and customs; building stock and age; frail and physically limited individuals; and type and density of infrastructure and lifelines.” Inequality was, the researchers found, the single most important predictor of vulnerability to storm damage — variation in the wealth of individual counties alone explained 12.4 percent of the differences in the impact of natural disasters between counties. The reasons for this are fairly clear — poorer communities have less resources to evacuate and prepare for storms, and also live in housing that’s less likely to be build to withstand nature’s wrath.

Should the Federal Government Be Subsidizing Flood Insurance? - As Hurricane Sandy continues to batter the Eastern seaboard of the U.S., one thing is for certain: insurance companies will be ponying up for billions of dollars in property damage caused by high winds. Last year’s Hurricane Irene cost insurance providers more than $4 billion in damage claims, with flood-insurance payments totaling nearly $1.3 billion. But what many Americans may not know is that this $1.3 billion was a bill footed by the federal government, which underwrites the vast majority of flood insurance across the nation. Historically, insurance companies have been wary of offering flood insurance to homeowners because the risks associated with flood insurance are difficult to forecast, so any private insurance that had been offered was prohibitively expensive for average homeowners. But in the 1960s, Congress set up the National Flood Insurance Program (NFIP) to provide flood insurance to the general public and promote effective floodplain management. Under the program, homeowners in certain areas of the U.S. are required to buy flood insurance, and communities that hope to benefit from the program have to enforce city-planning regulations set out by FEMA, which manages NFIP. Though the program has been effective at making flood insurance widely available, a growing chorus of critics from environmentalists to libertarians has been attacking it for encouraging homeowners to build recklessly in areas that are prone to flooding.

Hurricane Sandy Spills Sewage, Triggers Toxic Troubles: Raw sewage, industrial chemicals and floating debris filled flooded waterways around New York City on Tuesday. Left in the wake of Hurricane Sandy, the toxic stew may threaten the health of residents already dealing with more direct damages from the disaster. "Normally, sewer overflows are just discharged into waterways and humans that generate the sewage can avoid the consequences by avoiding the water," said John Lipscomb of the clean water advocacy group Riverkeeper. "But in this case, that waste has come back into our communities." One particular concern is the Gowanus neighborhood in Brooklyn, which abuts a 1.8 mile canal that was recently designated a Superfund cleanup site by the U.S. Environmental Protection Agency due to a legacy of industrial pollution and sewage discharges. Evidence remains of the flood waters that filled Jim Gratson's basement.On Tuesday morning, Gratson and his neighbors, most of them members of a small artist community, took turns using electric pumps to flush the chest-high water from their basements. Standing over the cellar steps, Gratson pointed down at the brown, murky soup. Just a block away, he said, the basements, while flooded, looked like they'd escaped the canal's putrid grasp.

Romney/Ryan on FEMA and NOAA - From National Journal, Governor Romney on FEMA:When asked about disaster relief and FEMA's role in a debate in June of 2011, Romney said, “Every time you have an occasion to take something from the federal government and send it back to the states, that’s the right direction. And if you can go even further, and send it back to the private sector, that's even better,” according to a transcript of the debate. He added: “Instead of thinking, in the federal budget, ‘What we should cut,’ we should ask the opposite question, ‘What should we keep?' When questioned by moderator John King of CNN about disaster relief specifically, Romney responded, “We cannot afford to do those things without jeopardizing the future for our kids. It is simply immoral, in my view, for us to continue to rack up larger and larger debts and pass them on to our kids, knowing full well that we'll all be dead and gone before it's paid off. It makes no sense at all." From CBS News last year, on Representative Ryan’s FY2012 budget plan: The GOP budget plan that passed through the House last month aimed to cut funding for a tsunami warning center that issued a slew of warnings around Japan's devastating earthquake. The budget, which proposed about $60 billion in budget cuts, would slash funding for the National Weather Service and the National Oceanic and Atmospheric Administration (NOAA).

Satellite Tracking of Hurricanes in Peril - Weather forecasters were able to predict the track of Hurricane Sandy with increasing accuracy as it moved up the Atlantic Coast, turned west to make landfall on the coast of New Jersey and then veered north toward Canada. That capability, which allowed communities to prepare for the worst and evacuate where necessary, will be lost in just a few years thanks to bad mismanagement and shortsighted federal budget cuts over the past decade. Current forecasts depend heavily on government satellites that have orbits that sweep from pole to pole and scan the planet, strip by strip, as it passes beneath them. Eighty-four percent of the data used in the main American computer model that tracked Hurricane Sandy was provided by these satellites. Without data from these crucial sentinels, forecasters would have underestimated by half the snow dumped by the huge blizzard that paralyzed the East Coast in early 2010. The polar satellites are nearing or beyond their working lives, and the launch of a replacement has been put off until 2017. That delay virtually guarantees a coverage gap of a year or more. The satellite program has been plagued by technical difficulties; underestimated costs and subsequent budget overruns; and management conflicts among various federal agencies that were supposedly cooperating on a replacement. The program is being managed by the National Oceanic and Atmospheric Administration, whose chief has pledged to fix “this dysfunctional program that had become a national embarrassment due to chronic management problems.” NOAA launched a new satellite a year ago to help avert a gap in coverage, but it, too, has suffered technical glitches that will shorten its lifetime.

A “Fossil-Fueled Storm” Calls for an Immediate Crash Course on Climate Change - If you’ve been following twitter, you’ve probably seen a bunch of pictures of various parts of the Northeast subjected to the climate nightmare known as Hurricane Sandy. This storm is not a natural disaster, it is a result of us pumping huge amounts of carbon into the atmosphere for over a century. As the fantastic new group Forecast the Facts notes, this is a a fossil-fueled storm. So how is the organizing going? Well, the climate change related group 350.org did a climate action before the storm in Times Square, asking for an end to the climate silence during the Presidential debate. Here are some places you won’t see any information about this climate disaster.

Watching Sandy, Ignoring Climate Change - A couple of weeks ago, Munich Re, one of the world’s largest reinsurance firms, issued a study titled “Severe Weather in North America.” According to the press release that accompanied the report, “Nowhere in the world is the rising number of natural catastrophes more evident than in North America.” The number of what Munich Re refers to as “weather-related loss events,” and what the rest of us would probably call weather-related disasters, has quintupled over the last three decades. While many factors have contributed to this trend, including an increase in the number of people living in flood-prone areas, the report identified global warming as one of the major culprits: “Climate change particularly affects formation of heat-waves, droughts, intense precipitation events, and in the long run most probably also tropical cyclone intensity.” Munich Re’s report was aimed at the firm’s clients—other insurance companies—and does not make compelling reading for a general audience. But its appearance just two weeks ahead of Hurricane Sandy seems to lend it a peculiarly grisly relevance. Sandy has been called a “superstorm,” a “Frankenstorm,” a “freakish and unprecedented monster,” and possibly “unique in the annals of American weather history.” It has already killed 65 people in the Caribbean, and, although it’s too early to tell what its full impact will be as it churns up the East Coast, loss estimates are topping $6 billion.

Did Climate Change Cause Hurricane Sandy? - If you’ve followed the U.S. news and weather in the past 24 hours you have no doubt run across a journalist or blogger explaining why it’s difficult to say that climate change could be causing big storms like Sandy. Well, no doubt here: it is.The hedge expressed by journalists is that many variables go into creating a big storm, so the size of Hurricane Sandy, or any specific storm, cannot be attributed to climate change. That’s true, and it’s based on good science. However, that statement does not mean that we cannot say that climate change is making storms bigger. It is doing just that—a statement also based on good science, and one that the insurance industry is embracing, by the way. Scientists have long taken a similarly cautious stance, but more are starting to drop the caveat and link climate change directly to intense storms and other extreme weather events, such as the warm 2012 winter in the eastern U.S. and the frigid one in Europe at the same time. They are emboldened because researchers have gotten very good in the past decade at determining what affects the variables that create big storms. Hurricane Sandy got large because it wandered north along the U.S. coast, where ocean water is still warm this time of year, pumping energy into the swirling system. But it got even larger when a cold Jet Stream made a sharp dip southward from Canada down into the eastern U.S. The cold air, positioned against warm Atlantic air, added energy to the atmosphere and therefore to Sandy, just as it moved into that region, expanding the storm even further.

Oceanus : Storms, Floods, and Droughts - The source of the rain that filled your town reservoir, or flooded your nearby river, or never arrived to water your crops, is most likely the ocean. The ocean contains 96 percent of the free water on Earth, and it acts like a massive water pump. It is powered by heat evaporating water into water vapor. The atmosphere transports it far and wide, until it condenses into rain or snow and completes the cycle by falling directly back on the ocean or returning via land, rivers, and underground aquifers back to the sea (see interactive graphic). Now, as global temperatures have been rising, there is strong evidence that the ocean water pump has been revving up. You need only look at recent headlines: This week's Hurricane Sandy killed at least 74 people and caused tens of billions of dollars in damages. The scorching drought across the continental United States in 2012 resulted in crop failures and soaring food prices. Extreme weather events have become more frequent across the globe. Tremendous floods in 2011 wreaked havoc in South America, Southeast Asia, and Australia, where the worst flooding in decades in Australia caused $30 billion in damage. In 2010, flooding in Pakistan killed 1,400 people and displaced 200,000 others. The 2010 heat wave in western Asia caused major crop failures and wildfires across Russia, causing at least 56,000 deaths and $15 billion in damages, including 2,000 buildings destroyed, and was even implicated in the food riots that grew into the political uprisings of the "Arab Spring."

Dr. Jeff Masters' WunderBlog : Why did Hurricane Sandy take such an unusual track into New Jersey? - A strong ridge of high pressure parked itself over Greenland beginning on October 20, creating a "blocking ridge" that prevented the normal west-to-east flow of winds over Eastern North America. Think of the blocking ridge like a big truck parked over Greenland. Storms approaching from the west (like the fall low pressure system that moved across the U.S. from California to Pennsylvania last week) or from the south (Hurricane Sandy) were blocked from heading to the northeast. Caught in the equivalent of an atmospheric traffic jam, the two storms collided over the Northeast U.S., combined into one, and are now waiting for the truck parked over Greenland to move. The strength of the blocking ridge, as measured by the strength of the North Atlantic Oscillation (NAO), was quite high--about two standard deviations from average, something that occurs approximately 5% of the time. When the NAO is in a strong negative phase, we tend to have blocking ridges over Greenland. Arctic sea ice loss can cause blocking ridges. Blocking ridges occur naturally, but are uncommon over Greenland this time of year. According to NOAA's Climate Prediction Center, blocking near the longitude of Greenland (50°W) only occurs about 2% of the time in the fall. These odds rise to about 6% in winter and spring. As I discussed in an April post, Arctic sea ice loss tied to unusual jet stream patterns, three studies published in the past year have found that the jet stream has been getting stuck in unusually strong blocking patterns in recent years.

2 Refineries, 3 Nuclear Sites, And 6.25 Million Residents Still Dark on 10/31/ The US Department of Energy has just released their latest storm damage report for Sandy and it does not make for good reading. Over 50% of New Jersey residents remain without electricity and almost 2 million people in New York state alone. Port Reading (Hess) and Linden (Phillips) refineries remain shutdown (about 308,000 barrels per day or 26% capacity offline), and 3 nuclear sites (Salem, Indian Point, and Nine Mile Point) remain offline and many of the others are at dramatically lowered output (only 52% of capacity online!). Not good...

Al Gore: Hurricane Sandy is a global-warming warning - Former vice president-turned-climate-change-activist Al Gore warned Tuesday that the storm that ravaged the East Coast Monday is “a disturbing sign of things to come.” “We must heed this warning and act quickly to solve the climate crisis. Dirty energy makes dirty weather,” Gore said in a statement posted on his blog Tuesday afternoon. Gore, one of the country’s most high-profile advocates of measures to reduce greenhouse gas emissions, compared this week's massive storm to 2010 floods that devastated Nashville, Tenn. “For me, the Nashville flood was a milestone,” he said. “For many, Hurricane Sandy may prove to be a similar event: a time when the climate crisis — which is often sequestered to the far reaches of our everyday awareness became a reality.” Both natural disasters, Gore said, “were strengthened by the climate crisis.”

Kevin Trenberth: Super Storm Sandy - In many ways, Sandy resulted from the chance alignment of several factors associated with the weather. A human influence was also present, however. Storms typically reach out and grab available moisture from a region 3 to 5 times the rainfall radius of the storm itself, allowing it to make such prodigious amounts of rain. The sea surface temperatures just before the storm were some 5°F above the 30-year average, or “normal,” for this time of year over a 500 mile swath off the coastline from the Carolinas to Canada, and 1°F of this is very likely a direct result of global warming. With every degree F rise in temperatures, the atmosphere can hold 4 percent more moisture. Thus, Sandy was able to pull in more moisture, fueling a stronger storm and magnifying the amount of rainfall by as much as 5 to 10 percent compared with conditions more than 40 years ago. Heavy rainfall and widespread flooding are a consequence. Climate change has also led to the continual rise in sea levels—currently at a rate of just over a foot per century—as a result of melting land ice (especially glaciers and Greenland) and the expanding warming ocean, providing a higher base level from which the storm surge operates. These physical factors associated with human influences on climate likely contribute to more intense and possibly slightly bigger storms with heavier rainfalls. But this is very hard to prove because of the naturally large variability among storms. This variability also makes it impossible to prove there is no human influence. Instead, it is important to recognize that we have a “new normal,” whereby the environment in which all storms form is simply different than it was just a few decades ago. Global climate change has contributed to the higher sea surface and sub-surface ocean temperatures, a warmer and moister atmosphere above the ocean, higher water levels around the globe, and perhaps more precipitation in storms.

“We Have a Planetary Emergency”: Hansen, leading NASA climate scientist, urges unions to act - The world's most well-known climate scientist, James Hansen of NASA's Goddard Institute, addressed 75 union leaders and allies at a global trade union roundtable in New York City this month. Entitled "Energy Emergency, Energy Transition," the event was convened by ILR's Global Labor Institute (GLI), part of the new Worker Institute at Cornell. The Rosa Luxemburg Foundation's New York City office partnered with GLI in organizing the Oct. 10-12 event. "The truth is, we have a planetary emergency," Hansen said. Union representatives from 18 countries listened in silence as Hansen described what is happening to the earth's climate, ice sheets, oceans and weather patterns. Hansen's presentation can be seen at http://www.youtube.com/watch?v=-dbmqhon5TY . "The volume of Arctic sea ice has been reduced by 75 percent in just 30 years. Greenland's ice sheet is losing mass at about 300 cubic kilometers per year. Sea levels are going up, and there is a danger that the ice sheets will begin to collapse and we could get several meters (of rising sea levels) in one year – which would be disastrous," Hansen said. "The frequency of extreme weather events is changing because the planet is getting warmer. It was exceedingly hot this past summer, and the frequency and area covered by these events are both increasing."

Hurricane Sandy and climate change - Reader Jan Galkowski sends this caution about promoting Hurricane Sandy as the result of climate change. The following is taken from an e-mail to me yesterday: There's a lot being written about Hurricane Sandy in connection with climate change. It is likely that this hurricane was exacerbated by human induced climate change, notably the excessively warm waters off New England, but it is not scientifically correct to say the hurricane or its merging to become a nor'easter were caused by climate change. It is possible that the blocking high over Greenland contributed to that, however the attribution is dilute, if present. Andy Revkin in the New York Times has a nice summary of the current science. Although we know all is affected by greater energy on the planet, the fraction of Sandy's fury attributable is perhaps 10%. Thus, comments like the following from 350.org are simply incorrect, and are misleading: It's as out of kilter as the melting Arctic or the acidifying ocean. And if there were any poetic justice, it would be named Hurricane Chevron or Hurricane Exxon, not Hurricane Sandy. The ends do not justify the means. If there's something to be learned by this experience, it is that climate change is expanding and enlarging the oceans by thermal effects, and eventually by ice mass melting, both through displacement and gravitational effects. Eventually, common nor'easters will suffice to breach Battery Park walls and drown barrier islands. And there may be surprises in store as well.

Hurricane Sandy: Is There Anything We Can Do About Climate Change Soon? - The East Coast is slowly returning to normal life after Hurricane Sandy – and pundits, scientists, and journalists are quickly diving into a debate over what the storm says about climate change. I have nothing useful to add on that matter. But I do wanted to shed light on an important related question that has come up: is it even possible to change the course of climate change over the next fifty or so years? The uninformed conventional wisdom is something like “of course we can change things if we start shifting to clean energy”. As I explain below, that’s not really true. David Roberts does a nice job of laying out what I’d call the “informed conventional wisdom” in a series of tweets (!) that I’ve concatenated here:“Realtalk: The oceans will continue to rise for at least 50 years no matter what we do. We can only affect the latter half of century. There’s nothing Obama (or Bush, Clinton, Bush, or Reagan) could have done to prevent Sandy. Climate don’t work that way. Big time lags. The mega-hurricanes that we CAN prevent are the ones that will bedevil our children in the latter third of this century. The best we can do for ourselves and those alive in the next 50 years is enhance the resilience of our communities & infrastructure.”

Costs to come - THE economic approach to global warming is relatively straightforward. The emission of greenhouse gases generates a negative spillover—global warming—that harms others. Someone driving a car emits carbon dioxide into the atmosphere which contributes to climate change, but because most of the cost of the car's contribution to warming will be felt by people other than the driver, he has an incentive to drive too much. Aggregate that decision to emit too much across all of the world's population, and you get a serious economic problem. Luckily, there is a solution. By taxing the emission of greenhouse gases, one can align private and public costs. The cost of the driver's emissions will be "internalised", he'll drive less, emissions will fall, and warming will slow. All that remains is to tot up an estimate of the "social cost of carbon" and convert that into an optimal tax rate. And in fact, many models reckon the tax need not be too high, as it makes sense to accommodate quite a lot of warming. The costs of climate change will mount over time, but so too will global income, the thinking goes. Economic actors are resilient and will be able to adapt. All in all, we shouldn't expect global warming to dent expected GDP growth so much that a stifling tax rate is necessary.

A Convenient Excuse - I explained to my former Globe colleagues that I wasn't there to "save the planet" or to protect some abstraction called "the environment." I'm really not an environmentalist, and never have been. No, I said, I was there for my kids: my son, who's 12, and my daughter, who's 8. And not only my kids — all of our kids, everywhere. Because on our current trajectory, it's entirely possible that we'll no longer have a livable climate — one that allows for stable, secure societies to survive — within the lifetimes of today's children. And I told them that I was there, in that room, because the national conversation we're having about this situation, this emergency, is utterly inadequate —or, really, nonexistent. And I looked Peter in the eye, and told him that I'm sorry, but that's completely unacceptable to me. If we can't speak honestly about this crisis — if we can't lay it on the line — then how can we look at ourselves in the mirror? Since I had requested the meeting, I told Peter that I hoped to frame the discussion around two points: First: We need to see a much greater sense of urgency in the media's coverage of climate change, including in the Globe's editorial and opinion pages. This is more than an environmental crisis: it's an existential threat, and it should be treated like one, without fear of sounding alarmist, rather than covered as just another special interest, something only environmentalists care about. Second: Business-as-usual, politics-as-usual, and journalism-as-usual are failing us when it comes to addressing the climate threat. If there's to be any hope for the kind of bold action we need, a great deal of pressure must be brought from outside the system, in the form of a broad-based grassroots movement, in order to break the stranglehold of the big-money fossil fuel lobby on our politics.

Why Seas Are Rising Ahead of Predictions: Sea levels are rising faster than expected from global warming, and University of Colorado geologist Bill Hay has a good idea why. The last official IPCC report in 2007 projected a global sea level rise between 0.2 and 0.5 meters by the year 2100. But current sea-level rise measurements meet or exceed the high end of that range and suggest a rise of one meter or more by the end of the century. "What's missing from the models used to forecast sea-level rise are critical feedbacks that speed everything up," says Hay. He will be presenting some of these feedbacks in a talk on Nov. 4, at the meeting of The Geological Society of America in Charlotte, North Carolina, USA. One of those feedbacks involves Arctic sea ice, another the Greenland ice cap, and another soil moisture and groundwater mining. "There is an Arctic sea ice connection," says Hay, despite the fact that melting sea ice -- which is already in the ocean -- does not itself raise sea level. Instead, it plays a role in the overall warming of the Arctic, which leads to ice losses in nearby Greenland and northern Canada. When sea ice melts, Hay explains, there is an oceanographic effect of releasing more fresh water from the Arctic, which is then replaced by inflows of brinier, warmer water from the south. "So it's a big heat pump that brings heat to the Arctic," says Hay. "That's not in any of the models."

June wind shift a little something extra behind recent Arctic sea ice losses - A graph of the long-term trend in summertime Arctic sea ice extent for the past few decades could double as a highway sign warning drivers that the road is heading downhill. Even against that backdrop, however, the annual summer thaws beginning in 2007 have been unusual. For James Overland, an Arctic oceanographer at NOAA’s Pacific Marine Environmental Laboratory, these six exceptionally slushy summers demanded an explanation that went beyond the obvious: that global warming is raising the Arctic’s temperature.These maps document what Overland and several colleagues say is the “something extra” behind the record ice retreats of the past 6 years: each June, the prevailing winds shifted from their normal west-to-east direction and instead blew strongly from the south across the Bering and Chuchki Seas (image left), over the North Pole, and out toward Fram Strait. (The length of the lines is qualitative: longer lines mean stronger winds.)

"Albedo evolution of seasonal Arctic sea ice," - There is an ongoing shift in the Arctic sea ice cover from multiyear ice to seasonal ice. Here we examine the impact of this shift on sea ice albedo. Our analysis of observations from four years of field experiments indicates that seasonal ice undergoes an albedo evolution with seven phases; cold snow, melting snow, pond formation, pond drainage, pond evolution, open water, and freezeup. Once surface ice melt begins, seasonal ice albedos are consistently less than albedos for multiyear ice resulting in more solar heat absorbed in the ice and transmitted to the ocean. The shift from a multiyear to seasonal ice cover has significant implications for the heat and mass budget of the ice and for primary productivity in the upper ocean. There will be enhanced melting of the ice cover and an increase in the amount of sunlight available in the upper ocean.

Cato Institute Helpfully Makes Its Fake Climate Report Look Like Actual Government Climate Report, Except Fake - Remember a few months ago when hilariously titled fake ripoffs of bestsellers were all over Amazon’s e-book store — 35 Shades of Grey, or I am the Girl with the Dragon Tattoo, that sort of thing? The playful jokesters of the Cato Institute are using their Koch Industries Megabux to top that! They will soon release a delightful “spoof” of a 2009 US Government report on climate change, except that where the real report looks at real science, the fake “Addendum” contains the reassuring news that climate change is no big deal, hooray! The shrill Marxists at Scientific American have the story: The addendum matches the layout and design of the original, published by the U.S. Global Change Research Program: Cover art, “key message” sections, table of contents are all virtually identical, down to the chapter heads, fonts and footnotes…. “It’s not an addendum. It’s a counterfeit,” said John Abraham, an associate professor at the University of Saint Thomas in Minnesota who studies clean power sources. “It’s a continued effort to kick the can down the road: A steady drip, drip, drip of fake reports by false scientists to create a false sense of debate.” The 2009 report, available online, was prepared for Congress as “the most comprehensive and authoritative report of its kind” by scientists at the U.S. Global Change Research Program, and its findings are regularly updated by that group (spoiler alert: They have not decided they were wrong).

Anger as oil chief appointed to climate committee: Wide condemnation has been expressed at the appointment of climate change sceptic and oil company director Peter Lilley to the House of Commons energy and climate change select committee. The committee examines the expenditure, administration and policy of the Department of Energy and Climate Change and its associated public bodies. Green campaigners have been particularly vocal in their condemnation of Lilly's appointment to the 11-member committee after a raft of alleged anti-renewable and climate change sceptics have recently been given environment posts in the Government. Greenpeace policy director Joss Garman said: "The addition of climate change sceptic and oil company director Peter Lilley to the energy and climate change select committee is part of a growing picture.

List of CO2 Emissions per Capita - A list of CO2 Emissions by Major Countries - CO2 emissions are widely considered to play a significant role in contributing to global warming.

Over the past few decades, the level of CO2 in the atmosphere have continued to rise. Scientists say this increase in CO2 has contributed to global warming.

At Kyoto countries made commitments to target lower CO2 emissions, but these targets have rarely been met.

Geoengineering: Testing the Waters - Naomi Klein - Looking out at the ocean, we spotted two towering, black dorsal fins: orcas, or killer whales. Then two more. We had never seen an orca on the coast, and never heard of their coming so close to shore. The possibility that the sighting may have resulted from something less serendipitous did not occur to me until two weeks ago, when I read reports of a bizarre ocean experiment off the islands of Haida Gwaii, several hundred miles from where we spotted the orcas swimming. There, an American entrepreneur named Russ George dumped 120 tons of iron dust off the hull of a rented fishing boat; the plan was to create an algae bloom that would sequester carbon and thereby combat climate change. Mr. George is one of a growing number of would-be geoengineers who advocate high-risk, large-scale technical interventions that would fundamentally change the oceans and skies in order to reduce the effects of global warming. In addition to Mr. George’s scheme to fertilize the ocean with iron, other geoengineering strategies under consideration include pumping sulfate aerosols into the upper atmosphere to imitate the cooling effects of a major volcanic eruption and “brightening” clouds so they reflect more of the sun’s rays back to space. The risks are huge. Ocean fertilization could trigger dead zones and toxic tides. And multiple simulations have predicted that mimicking the effects of a volcano would interfere with monsoons in Asia and Africa, potentially threatening water and food security for billions of people. So far, these proposals have mostly served as fodder for computer models and scientific papers. But with Mr. George’s ocean adventure, geoengineering has decisively escaped the laboratory. If Mr. George’s account of the mission is to be believed, his actions created an algae bloom in an area half of the size of Massachusetts that attracted a huge array of aquatic life, including whales that could be “counted by the score.” When I read about the whales, I began to wonder: could it be that

Playing God - There are two distinct approaches under consideration -- sucking carbon out of the atmosphere, or creating an artificial sun shield for the planet. The former, which involves reversing some of the veryprocesses that are leading to the climate problem, is expensive. The latter just sounds scary. David Keith, a leading thinker on geoengineering, calls it "chemotherapy" for the planet. "You are repulsed?" he says. "Good. No one should like it. It's a terrible option." Repugnant or not, with the globe failing to develop other ways to halt climate change, geoengineering is increasingly becoming an option. The science and engineering are relentlessly marching on: Most research so far has focused on computer modeling, but some has started to move beyond -- trying to test, for example, how to deliver particles into the upper reaches of the atmosphere. This summer, an entrepreneur conducted a rogue experiment, dumping 100 tons of iron into the Pacific in an attempt to "seed" the ocean and spur the removal of carbon dioxide from the atmosphere. This episode represents a particularly apt example of science -- in this case, self-experimentation -- speeding far ahead of public opinion and oversight. All it takes is a single actor willing to focus on the purported benefits to his country or her region to pull the geoengineering trigger. The task with geoengineering is to coordinate international inaction while the international community considers what steps should be taken. The fate of the planet cannot be left in the hands of one leader, one nation, one billionaire.

A Looming Mass Extinction Caused By Humans - In around 300 years time, 75% of all mammal species will have disappeared from this planet. That's the startling prediction from Anthony Barnosky, a palaeobiologist at the University of California, Berkeley – that’s if the current rates of extinction continue and the animals already threatened or endangered are wiped out this century. Barnosky studies biodiversity changes and extinction rates that occurred in the deep past, and compares them to trends happening now. Since life first evolved billions of years ago and flourished, diversified, and made our planet what it is, there have been five mass extinctions. Each was triggered by a cataclysmic event and resulted in at least 75% of all species going extinct. The last of these events occurred 65 million years ago, when a meteorite slammed into Earth, throwing up persistent clouds of debris that darkened the sky for years. The resulting change in climate led to a mass extinction that included the dinosaurs. Barnosky calculates that humans are now creating a mass extinction on the same scale – the planet's sixth one – through a combination of habitat encroachment and fragmentation, hunting, climate change, pollution, and the spread of disease and introduced species. As many as 30% of all species may be lost over the next four decades, conservationists estimate.

How Do You Spell Extinction Event? 3.6 degrees Fahrenheit, 2 degrees Centigrade - It’s been clear for decades that industrial and automotive pollutants have been drastically altering the atmosphere and creating extreme, and extremely dangerous, weather patterns and neither party has done much of substance to eliminate the problem. They’re not alone. From the Christian Science Monitor-fossil fuel burning, cement and oil production produced 3 percent more carbon dioxide in 2011″…or an ”an all-time 37.5 billion-ton (34 billion-metric tons)”. … China, the United States, the European Union, India, the Russian Federation and Japan rank as the top five emitters, from highest to lowest. Last year’s increase was driven by China and India, which saw their carbon dioxide emissions jump by 9 and 6 percent, respectively. Meanwhile, emissions from the European Union, the United States and Japan all decreased, according to the report,Trends in Global CO2 Emissions.The report doesn’t include carbon dioxide emitted by deforestation, forest fires and other land-use related activities. These sources could potentially add between 10 and 20 percent to the carbon dioxide emission figures… Nothing, at this point stands in the way of a rise above 3.6 degrees F (2 degrees C) which will produce far more extreme weather, significant sea rise and ecologically devastating species extinctions.

The U.S.-EU Green Energy Divide - A report backed by Greenpeace and the European Renewable Energy Council finds the European Union could generate trillions of dollars in fuel savings by looking beyond goals mandated for 2020. Campaigners said greater investments for things like wind and solar power, coupled with a slow move away from things like coal, could make the region nearly carbon-free by 2050. On the other side of the Atlantic, however, officials have expressed reservations about being forced into a low-carbon economy, highlighting the green divide among western powers. The European campaign groups, in a report highlighting an "Energy (R)evolution," call on European leaders to move in favor of renewables and energy efficiency instead of fossil fuels or nuclear power. The group states that every time oil prices increase by $1, Europeans wind up paying more than $500 per month. That, they say, could drop by half by 2030 if leaders embrace a comprehensive green energy future. Frederic Thoma, the EU energy policy adviser at Greenpeace, said the region is approaching "a crucial crossroads" in 2020, the benchmark for existing mandates. "What we need now is a firm commitment at EU level to maintain the continent’s renewables revolution," the campaigner said in a statement.

Street lights turned off in their thousands - Lights are being turned off on motorways and major roads, in town centres and residential streets, and on footpaths and cycle ways, as councils try to save money on energy bills and meet carbon emission targets. The switch-off begins as early as 9pm. They are making the move despite concerns from safety campaigners and the police that it would lead to an increase in road accidents and crime. The full extent of the blackout can be disclosed following an investigation by The Sunday Telegraph - which comes on the day that clocks moved back an hour, making it dark earlier in the evening - and found that:

3,080 miles of motorways and trunk roads in England are now completely unlit;

a further 47 miles of motorway now have no lights between midnight and 5am, including one of Britain’s busiest stretches of the M1, between Luton and Milton Keynes;

out of 134 councils which responded to a survey, 73% said they had switched off or dimmed some lights or were planning to;

all of England’s 27 county councils have turned off or dimmed street lamps in their areas.

The vast majority of councils have chosen to turn lights off at night, at times when they say there is less need for them, while others have installed lamps which can be dimmed.

World's Largest Offshore Windfarm Produces its First Electricity - The first phase of the London Array, the world’s largest offshore windfarm, has started to produce electricity for the first time. The project will see 175 turbines installed 12 miles off the coast of Kent and Essex, providing a capacity of 630 megawatts, enough to supply power to more than 470,000 homes. So far 151 turbines have been successfully installed since construction began in March 2011. The second phase will increase that capacity to 870MW, although the plans have had to be resubmitted after the first set were deemed to cover too large an area and could have had a negative impact on local birdlife. Benj Sykes, the wind UK country manager at Dong Energy, the largest investor in the project, said that “being able to efficiently develop large offshore windfarms and harvest the scale advantages in both construction and operation is an important element in our continuous efforts to bring down the costs of energy of offshore wind.”

Renewable energy will overtake nuclear power by 2018, research says | Environment | The Guardian: Renewable energy capacity will overtake nuclear power in the UK by 2018, if current rates of growth continue, and will provide enough power for one in 10 British homes by 2015, according to new research. The amount of electricity supplied by wind energy alone is up by a quarter since 2010, in a surprisingly good year for the renewables industry. While the government has notably cooled on wind power – more than 100 Tory MPs signed a statement this year opposing new windfarms, and the chancellor of the exchequer, George Osborne, has queried the future of subsidies – the industry has continued to grow, with investment in offshore wind up by about 60% to £1.5bn in the past year. Planning approvals for onshore windfarms also rose, up by about half, to reach a record level, according to the trade association Renewable UK. Despite the outspoken opposition from many Tory MPs against wind power, there was a rise in the amount of onshore wind capacity approved last year for the first time since 2008.

Solar Energy Is Booming, But It's Getting Completely Crushed By Coal : The U.S. added 130 new solar electric plants between January and August this year. But their output still didn't add up to the electricity generated by the country's new coal plants. John Hanger points us to the total new electricity generating capacity added in the U.S. for the period. The output produced by the country's three new coal plants — one in Mississippi and one in Missouri — is nearly triple the wattage produced by the new solar units that came online this year. Check it out:

Coal resurgence threatens climate change targets - Coal is enjoying a renaissance, with the highest consumption of the fuel since the late 1960s. The unexpected development threatens to put climate change targets out of reach – and much of the reason is the rise of a supposedly "green" fuel, natural gas. The controversial use of shale gas in the US, where it now makes up a quarter of electricity generation, has brought down carbon emissions there – but the greenhouse gases have simply been exported elsewhere, meaning no net gain for the planet, research by the Guardian and other sources has found. As gas power has replaced coal in the US, the excess coal has pushed down prices on world markets, sparking a bonanza for the high-carbon fuel. Last year, coal had its best year in more than four decades, according to the World Coal Association. Its global share of primary energy consumption rose from about 25%, where it has been for years, to 30% – the highest level since 1969, long before governments made any efforts to tackle climate change.

EXCLUSIVE: Coal Export Lobby Spends Big On Ads Promoting Shipping Taxpayer-Owned Coal Abroad - Exporting coal from Montana and Wyoming’s Powder River Basin to markets around the world by way of shipping terminals in the Pacific Northwest is shaping up to be one of the next big environmental fights. Currently five export terminals are proposed for Oregon and Washington, which would also require additional infrastructure like new coal trains running from the interior West to the coast. There is serious money to be made from shipping coal abroad. As David Roberts at Grist pointed out: “the health of the U.S. coal industry hinges on its ability to increase exports to China and India.” So it’s no surprise that the coal, rail, and shipping industries spent nearly a million dollars in one month on television ads supporting the construction of coal export terminals.

Fukushima 'running out of space' to store radioactive water - Japan's crippled Fukushima nuclear power plant is struggling to find space to store tens of thousands of tons of highly contaminated water, it emerged today. About 200,000 tons of radioactive water used to cool the broken reactors are being stored in hundreds of gigantic tanks built around the Fukushima Dai-ichi plant. Operator Tokyo Electric Power (Tepco) has already chopped down trees to make room for more tanks and predicts the volume will more than triple within three years. "Our land is limited and we could eventually run out of storage space," said water treatment manager Yuichi Okamura. Tepco's tanks are filling up mostly because leaks in reactor facilities are allowing ground water to pour in. Outside experts say that if contaminated water is released, there will be a lasting impact on the environment. 'Radioactive water in the basements may already be getting into the underground water system, where it could reach far beyond the plant, possibly into the ocean or public water supplies.'

Despite Fukushima, China Embraces Nuclear Power - Advocates of NPPs rightly point out that, in a world increasingly concerned about greenhouse gases and CO2 emissions, nuclear power plants are essentially emissions-free. Opponents counter that the nuclear power industry’s dolorous safety record, beginning with Three Mile Island through Chernobyl to Fukushima Daiichi indicates the folly of believing that a NPP to withstand all risks, from human error to Mother Nature, 100 percent of the time. And then there remains the as yet unresolved problem of what to do with NPP waste. But China, which in the aftermath of the Fukushima Daiichi catastrophe imposed a nationwide ban on the construction of new NPPs, has concluded that the nation needs new nuclear power installations. Why would Beijing take such a seemingly retrograde step, especially as nuclear power currently contributes only 1.8 percent of China’s electrical output? Coal still accounts for about 70 percent of China's energy consumption and about 80 percent of its electricity production.

Nuclear power plant cybersecurity warnings silenced by legal threats - Legal threats have silenced security warnings at a recent systems-control conference. Two talks at a recent US conference on cyber security in critical infrastructure were pulled from the agenda after a supplier of nuclear power plant equipment threatened to sue, worried that open discussion of vulnerabilities would reveal too much - even though the presentations had been approved by the power plant in question. The conference, the 12th ICS Cyber Security Conference, was held at Old Dominion University's Virginia Modeling Analysis and Simulation Center 22-25 October. Participants were told that the security firm that uncovered the thousands of pieces of control equipment that are exposed to online attack demurred from telling US authorities where the equipment is installed, since it feared that the equipment's owners would sue, according to a Reuters report. Besides legal threats, security findings were muzzled in other ways. The US government itself has been keeping potential targets of attack in the dark, the alarmed attendees were told.

Green Party Candidate Jill Stein Arrested Protesting Keystone XL Pipeline: 'I'm Here To Connect The Dots' - After more than two months of protests against construction of the Keystone XL pipeline in Texas and Oklahoma, the arrest count has reached 33. Green Party presidential candidate Jill Stein was the latest to get arrested after she brought supplies to activist treesitters attempting to block construction of the Keystone XL pipeline in Texas. Stein issued a statement criticizing both President Obama and Governor Romney for their policies on fossil fuels: “I’m here to connect the dots between super storm Sandy and the record heat, drought, and fire we’ve seen this year – and this Tar Sands pipeline, which will make all of these problems much worse. And I’m here to connect the dots between climate devastation and pipeline politicians – both Obama and Romney – who are competing, as we saw in the debates, for the role of Puppet In Chief for the fossil fuel industry. Both deserve that title. Obama’s record of ‘drill baby drill’ has gone beyond the harm done by George Bush. Mitt Romney promises more of the same.” Stein’s arrest follows the Oct. 4 arrest of 78-year-old great grandmother Eleanor Fairchild, who was charged with trespassing on her own land after standing in the path of bulldozers.

Researchers explore greener options in the oilsands - Canada’s oilsands industry isn’t just one of the country’s key economic drivers. Increasingly, it is driving innovation as researchers search for new ways to develop the vast oilsands resources in ways that reduce the impact on the environment. These activities are two-pronged. One involves reducing greenhouse gas emissions that have been linked to climate change. The other aims to recover lands disrupted by the extraction process. Warren Mabee, a policy studies professor at Queen’s University, says one of the most promising developments to date is an extraction method called in situ, which is becoming more widely used in the oilsands. This involves the injection of steam and sometimes other substances into the ground to bring the oil to the surface. In-situ extraction doesn’t result in large open pits in the ground, nor does it require clear-cutting forests, as conventional oilsands mining does, Mabee says. There are concerns, however, about potential contamination of groundwater from the materials used in in-situ oilsands development and unknown geological consequences. “Nothing is win-win,” he says. “Nothing is straight-up. As we move forward into this seven- or eight-billion person world and we have to provide more and more services and energy, we’re going to find ourselves in a situation where we have to make a lot of trade-offs.”

Quake Raises More Northern Gateway Concerns - The earthquake that rattled Haida Gwaii Saturday has also jolted the debate surrounding the proposed Northern Gateway project, with some saying the quake underlines the potential pitfalls of oil tankers plying the B.C. coast. That’s despite the fact that neither the pipeline nor the tanker routes outlined in the Enbridge proposal would cross the Queen Charlotte Fault, which runs along the west side of Haida Gwaii and was the seismic backdrop to Saturday’s 7.7-magnitude quake. “I think we have all been complacent about what happens, or what can potentially happen, with an earthquake,” Haisla Nation Chief Councillor Ellis Ross said Monday. “We have to think about that in the context of supertankers carrying crude oil in Douglas Channel or outside Hartley Bay or outside Haida Gwaii. ... I think that has to be part of the discussion.”

Putin Is the New Global Shah of Oil - Exxon Mobil is no longer the world's number-one oil producer. As of yesterday, that title belongs to Putin Oil Corp – oh, whoops. We mean the title belongs to Rosneft, Russia's state-controlled oil company. With TNK-BP in its hands, Rosneft will be in charge of more than 4 million barrels of oil production a day. And who is in charge of Rosneft? None other than Vladimir Putin, Russia's resource-full president. Gazprom in control of Europe's gas, Rosneft in control of its oil. A red hand stretching out from Russia to strangle the supremacy of the West and pave the way for a new world order– one with Russia at the helm. It is not as far-fetched as it might seem – or as you might want it to be. Or imagine this: Russia could join OPEC.

Why Energy May Be Abundant But Not Cheap - Many people think “peak oil” is about the world is “running out of oil." Actually, “peak oil” is about the world running out of cheap, easy-to-get oil. That means fossil fuels might be abundant (supply exceeds demand) for a time but still remain expensive. The abundance or scarcity of energy is only one factor in its price. As the cost of extraction, transport, refining, and taxes rise, so does the “cost basis” or the total cost of production from the field to the pump. Anyone selling oil below its cost basis will lose money and go out of business. We are trained to expect that anything that is abundant will be cheap, but energy is a special case: it can be abundant but costly, because it’s become costly to produce. EROEI (energy returned on energy invested) helps illuminate this point. In the good old days, one barrel of oil invested might yield 100 barrels of oil extracted and refined for delivery. Now it takes one barrel of oil to extract and refine 5 barrels of oil, or perhaps as little as 3 barrels of unconventional or deep sea oil. In the old days, oil would shoot out of the ground once a hole was drilled down to the deposit. All the easy-to-find, easy-to-get oil has been consumed; now even Saudi Arabia must pump millions of gallons of water into its wells to push the oil up out of the ground. Recent discoveries of oil are in costly locales deep offshore or in extreme conditions. It takes billions of dollars to erect the platforms and wells to reach the oil, so the cost basis of this new oil is high.

IMF study: Peak oil could do serious damage to the global economy - The world isn’t going to run out of oil anytime soon. But there’s still concern among various geologists and analysts that our oil supply won’t grow as quickly or as easily as it used to. We’ll have to resort to harder-to-drill oil to satisfy our crude habits. More expensive oil. That would push prices up. And high oil prices could act as a drag on growth. This, at any rate, is the basic idea behind “peak oil.” And there’s some reason for worry. Between 1981 and 2005, world oil production grew at a steady pace of about 1.8 percent per year. All was well. But starting around 2005, oil production appeared to plateau. And, since demand for oil kept rising, especially in countries like China and India, that caused prices to soar. Oil doesn’t get much cheaper than $100 per barrel these days. And that, some economists worry, has acted as a drag on growth around the world. So how bad would it be if peak oil was really upon us? That’s a question that two IMF economists try to tackle in a new working paper, “Oil and the World Economy: Some Possible Futures.” (pdf) The authors, Michael Kumhof and Dirk Muir, don’t make any definitive predictions about how the oil supply will evolve. Rather, they try to model a number of different scenarios in which oil does become more scarce and the world tries to adapt. The paper itself offers an interesting look at how the world might cope with higher oil prices, so let’s take a look at the various scenarios:

Shell Seeks Iran Sanctions Workaround Via Cargill Grain Barter - (Reuters) - Oil major Royal Dutch/Shell is seeking to work around international sanctions by repaying a $1.4 billion oil debt to Iran with a grain barter deal via U.S. agribusiness giant Cargill, industry sources said. Shell wants to repay a debt that is growing larger because of unpaid interest, having failed to settle its accounts with the National Iranian Oil Company (NIOC) ahead of a European Union embargo on oil imports that started on July 1. It is hoping to get clearance from U.S., UK and Dutch authorities - who will be under pressure to agree on humanitarian grounds - for an "offset agreement" that would permit it to fund Cargill to deliver enough grain to Tehran to clear the debt. "Shell wants to repay what it owes NIOC (National Iranian Oil Corp). They want to maintain amicable relations for the day when sanctions are lifted," said an industry source. "An offset transaction is the only way forward," said another. "They are looking at several options. The main one is Cargill."

Canadian Economy Shrinks as Oil, Mining Slump - The Canadian economy shrank unexpectedly in August, pointing to a sharp third-quarter slowdown in growth from the first half and reinforcing the Bank of Canada's message that interest rate hikes are less imminent. The surprising 0.1 percent contraction in August from July reflected broad weakness across most industries, prompting economists to revise forecasts down. The Canadian dollar weakened to below parity with its U.S. counterpart. August's dip was the first monthly contraction in GDP since February. Statistics Canada said on Wednesday it was largely caused by decreased production in the natural resources sector - oil and gas extraction and mining - as well as in manufacturing, Statscan said temporary maintenance work at some mines and oilfields was partly to blame. But some economists argued that the economy had stalled more broadly. "There are too many negatives in this report to dismiss the headline weakness as being attributable to just temporary disruptions in some sectors,"

Oilsands crippled by soaring costs, memo says - A confidential government memorandum obtained by CBC News warns that soaring costs of developing the Alberta oilsands could put the brakes on the massive project, stalling one of the main engines of the Canadian economy. The booming oilsands industry supports tens of thousands of Canadian jobs, and pumps billions of dollars a year into the national economy. The memo written by Mark Corey, one of the highest-ranking officials in the federal Department of Natural Resources, warns that if the current trend of spiralling labour and other costs continues, investors may start to turn off the tap on the massive amounts of money needed to develop the oilsands. "Although current crude prices promote oilsands development, ever-increasing capital and operating costs could make this price insufficient to support oilsands development at forecast levels," Corey writes. Cost increases are currently "the biggest risk to investment in the sector," and could jeopardize the viability of some projects, he says.

Flood Of Money Leaving China - Chinese investors evaded government controls to move more than $600 billion US out of the country last year and the outflow is increasing, fueling economic and political risks as communist leaders prepare for a handover of power, a Washington-based monitoring group says. The study by Global Financial Integrity gives backing to anecdotal signs of huge, unreported movements of Chinese money out of the country. Experts say the outflows are driven by public frustration with a banking system that subsidizes state companies at the expense of savers and by businesses profiting from loopholes in the government's pervasive economic controls. Chinese companies are widely believed to move money abroad both to invest and to "round trip" back into the country disguised as foreign investment to win tax breaks and other incentives. Chinese families move money abroad to gain a better return than they can from state banks that pay low deposit rates.

Corporate China hit by unpaid bills - Chinese listed companies have reported a sharp rise in unpaid bills during the third quarter, in one of the clearest signs yet of the toll that China's economic slowdown is taking on corporate balance sheets. A Financial Times analysis revealed that 66 per cent of listed Chinese companies that have reported third-quarter results showed a year-on-year increase in such unpaid bills -- called accounts receivable in accounting -- as a proportion of sales, according to the S&P Capital IQ database. China's economy is on track to grow at less than 8 per cent this year, which would be its slowest in more than a decade. While that is still very fast by international standards, many companies have invested on the expectation of sustained double-digit growth and the sharp rise in accounts receivable is an indication of how even a mild slowdown has caught them off guard. The hardest hit companies are those linked to the construction and infrastructure sectors, including machinery makers, steel mills, coal and cement companies.

When the Growth Model Changes, Abandon the Correlations - Michael Pettis - Chiwoong Lee at Goldman Sachs has a new report out (“China vs. 1970s Japan") in which he predicts that China’s long-term growth rate will drop to 7.5-8.5%. I disagree very strongly with his forecast, of course, and expect China’s growth rate over the next decade to average less than half that number, but the point of bringing up his report is not to disagree with the details of his analysis. I want instead to use his report to illustrate what I believe is a much more fundamental problem with these kinds of research pieces on China. The mistake I will argue he is making is one that is fairly common. It involves determining the past relationship between certain inputs and the outputs we want to forecast – say GDP growth. Once these are determined, the economist will carefully study the expected changes in the inputs, and then calculate the expected changes in the outputs, to arrive at his growth forecast. This is pretty much the standard analysis provided by the IMF, the World Bank, and both academic and sell-side research, but, as I will argue, this methodology implicitly assumes no real change in the underlying development model – no phase shift, to use a more fashionable term. If this assumption is correct, then the analysis is useful. If however we are on the verge of a shift in the development model – perhaps, and usually, because the existing model is unsustainable and must be reversed, the analysis has no value at all.

More on China’s official PMI -- As we know, China’s official manufacturing PMI climbed back above 50 in September after two months of sub-50 reading, suggesting a return to slow expansion. Headline PMI increased from 49.8 to 50.2, in-line with market expectation. Looking into sub-indices, new orders climbed back above 50 to 50.4, the first reading above 50 since April (although back then, it was 54.5), while new export orders increased from 48.8 to 49.3, suggesting a contraction in export orders at a slower pace. Meanwhile, finished goods inventory climbed from 47.9 to 48.1, suggesting that the pace of destocking has slowed down. This brings the new orders minus inventory to 2.3, highest since April. Meanwhile, output price continues to increase, from 51 to 54.3, suggesting an increase of raw material prices. Although the headline PMI suggests a return to expansion, note that official PMI has a seasonality problem. The chart below shows the PMI time series by years. Although October was not historically a great month compared with September as far as manufacturing PMI is concerned, official PMI tends to trend higher towards the end of the year. The current reading of 50.2 is the weakest October reading since record began, with the exception of 2008 as the financial crisis hit.

Debating China’s Economic Future - For the last thirty years, China’s economy averaged a growth rate of close to 10% a year. Now, with China on the cusp of a crucial leadership transition — and of joining the club of advanced economies – that has fallen away. The latest numbers shows growth in the third quarter at just 7.4%. Is 7% – 8% growth the new normal? Or is a further sharp slowdown in China’s economy inevitable? China Real Time has asked two of the leading experts on the world’s second-largest economy to debate that question: Nick Lardy, an expert on China’s economy at the Peterson Institute, is arguing current growth rates can be sustained. Michael Pettis, a professor of finance at Peking University, is arguing a further sharp slowdown is inevitable. The opening exchange of views is posted below, with more to be posted next week.

The renminbi bloc is here: Asia down, the rest of the world to go? - As China becomes ever more important in the global economy, will its currency take on an international role? This column argues that in some sense, this is already happening – an increasing number of emerging-market currencies seem to track (co-move with) the renminbi – and the trend is set to continue.

Will China fall flat on its face just like Japan? - In the late 80s, Japan was the Godzilla economy. Its output had grown 50-fold in dollar terms in the space of a generation, and Japan had seemingly overtaken the US as the most hi-tech nation. For many observers it was just a matter of a decade or so before Japan would become the world's biggest economy and its third superpower. But, of course, things didn't turn out that way. Instead, in 1990 Japan's stock market and property market both crashed spectacularly, leaving two decades (and counting) of economic stagnation in their wake. The more recent giddy rise of China's dragon economy is chillingly familiar. And many sceptical commentators have drawn the analogy with Japan, saying it is destined for a fall. But is this fair? We have put the two head-to-head, so you can decide:

No Surprise: Asia is World's Wealthiest Region - Although Swiss bankers have lost some of their cachet in recent years as reputations for both banking secrecy and sound money management have taken a hit, all is not lost. Even the seemingly hapless UBS has been dinged mostly on their investment banking side and not their private banking side. For many years, UBS was the top dog in private banking, but it has since surrendered that distinction to its compatriot, Credit Suisse. And speaking of Credit Suisse, it has just come out with its new "Global Wealth 2012" report which indicates that, for the first time since it's been compiling this report, Asia is the world's wealthiest region (add China and India to the tally for the Asia-Pacific for a total of $74.107 trillion): Note though that global wealth has shrunk over the past year--even in Asia. However, the decline there has been rather smaller than that in Europe and North America. While overtaking during a slide may not represent the most auspicious of circumstances, it is something which has happened nonetheless: Europe was responsible for 10.9 trillion US dollars of the total global loss of 12.3 trillion US dollars. Even with constant exchange rates, total household wealth in Europe fell by about 1 trillion US dollars. Asia-Pacific (excluding China and India) was the other big regional loser, shedding 1.3 trillion US dollars on the back of the dollar appreciation. Credit Suisse also sets its sights on the future being shaped in Asia. It's shaping to be Asia gaining at the expense of Europe going forward in the global wealth league tables:

China Warns It Will Respond "Forcefully" To Japanese Violation Of Its "Territorial Sovereignty" -- While the topic of the Japanese purchase of the contested [Senkaku|Diaoyu] Islands may have receded from the front pages of global media for lack of any major recent developments, the issue is still quite ripe in the minds of over 1 billion Chinese (and several hundred million Japanese, not to mention the executives of Japanese car and electronics makers who have seen a cliff-like collapse in purchases of their products by Chinese consumers in the past month). However, just because it is out of sight, does not mean it is out of mind, the front page of the official Chinese Daily is out with a big piece titled "China says no concession on territorial sovereignty" in which it makes it abundantly clear that Japan will have no choice but to back down in what China continues to consider an "aggressive" invasion of its territorial sovereignty. And to avoid any confision. Xinhua clarifies that if "anyone wants to challenge China's bottom line on the issue of sovereignty, China will have no alternative but to respond forcefully so as to remove disturbance and obstacles and move steadily on the path of peaceful development."

The Japan-China dispute is taking its toll; finger now pointed at the US - The Japan-China tensions are taking their toll on the Japanese economy. The latest industrial production numbers, which include the period of escalating rift between the two nations, look quite dismal. In fact both production and shipments are down significantly - the worst decline since the March 2011 tsunami disaster. In response, BOJ launched another round of QE - as was widely expected. As usual a central bank is asked to solve problems that should be left to the governments (similar to the Fed with the fiscal cliff and the ECB with the sovereign debt crisis). WSJ: - The central bank's policy board decided Tuesday to increase the BOJ'sasset purchases to ¥91 trillion ($1.14 trillion) from ¥80 trillion, and to introduce a new lending facility designed to stimulate loans by banks. The fresh measures marked the first time since May 2003 that the BOJ has taken easing steps two months in a row. The bank said it took action to keep Japan's economic policy on the path "to sustainable growth with price stability." The BOJ also downgraded its assessment of the economy, noting declines in both exports and output, key drivers of the country's economic growth. "Japan's economy has been weakening somewhat," it said in a statement, compared with its previous description of economic activity as "leveling off more or less." In the mean time the conflict between the two nations continues to brew - particularly with respect to the disputed islands (see discussion).

Japan Firms See Billions of Dollars in Revenue Lost as Tokyo-Beijing Row Churns On - Some of Japan's best-known companies are now counting the cost of Tokyo's festering territorial row with Beijing. Makers of everything from TV sets to face creams are confirming the worst fears of Japan's boardrooms: The fallout from the flare-up in bilateral relations together with the slowdown in the world's second-biggest economy will add up to billions of dollars in lost revenue this year. And there's no sign of Chinese consumers ending their boycotting of Japanese goods anytime soon as feelings continue to run high over Japan's move in September to purchase disputed islets in the East China Sea known as the Senkaku islands in Japan and the Diaoyu in China. Indications of the price tag of the dispute have come from the likes of Panasonic, Sony Corp. and All Nippon Airways Co. But the full impact is still not clear as several companies heavily exposed to sales in China, including auto giants Toyota Motor Corp. and Nissan Motor Co. have yet to file their fiscal second-quarter results and latest full-year forecasts. Toyota, which reports earnings Nov. 5, the day before Nissan, said Thursday that China vehicle sales slumped in October to nearly half their level a year earlier.

Has Chinese Currency Manipulation Succeeded in Breaking Japanese Manufacturers? - Yves Smith - Tonight’s Financial Times has a eye-popping story, that the survival of Sharp, one of Japan’s top consumer products manufacturers, is in doubt: Sharp has admitted there is “material doubt” about its ability to stay in business as it warned of a second year of record losses, deepening the gloom surrounding Japan’s once dominant consumer electronics industry… The warning came a day after Panasonic stunned investors by projecting a second consecutive $10bn loss. Panasonic’s share price dropped a further 19 per cent on Thursday. Sharp and Panasonic, along with Sony, are the most consumer-focused of Japan’s large technology companies. All three have suffered as prices for flatscreen televisions and other household items plunged globally. A strong yen and competition from lower-cost manufacturers elsewhere in Asia have turned the products that once underpinned their success into financial millstones. Last year, the three groups suffered a combined net loss of Y1.6tn – a figure that Sharp and Panasonic will come close to matching between them this year. The story correctly notes that an immediate cause of Sharp’s problems are botched investments in liquid crystal display manufacture. But a big, arguably the biggest, part of the story, is how long the yen has remained in nosebleed territory. Most observers thought a yen above 90 would be catastrophic for Japanese exporters, even allowing for the fact that they have moved a lot of production to lower-cost centers elsewhere in Asia. And the yen maintained that price from the crisis onward, and more recently has sustained the astonishing level of above 80 even in the face of intervention by the Bank of Japan. And there’s a reason for that. China has been buying yen, forcing Japan to buy dollars to keep the yen from going even higher. In other words, China has been accumulating yen and shifting the “dollar manipulation” onto Japan. The common view, that China is the largest foreign buyer of US Treasuries, is dated. In 2012 to date, Japan has purchased more, and its dollar reserves nearly equal China’s.

Summary: October’s PMI data indicated a further deterioration in the performance of the Japanese manufacturing sector. Orders and output both continued to fall during the month, while evidence of rising excess capacity led to a first reduction in employment for half a year. Manufacturers also intentionally cut back on their stock holdings as order books deteriorated and the outlook remained uncertain. Production and new orders both fell at similarly marked rates during the latest survey period. Panellists reported that the car industry was a particular source of softer demand. Overseas new orders also fell during the month, the seventh successive month that a decline has been recorded. As volumes of new orders and output fell further in October manufacturers were again able to make significant inroads into their work outstanding. Nearly a quarter of the survey panel indicated that backlogs were down in October and, with spare capacity seemingly rising, a number of companies also chose to lower their staffing levels.

Japan retail sales see worst fall since 2011 quake --Japanese retail sales marked the biggest on-month fall in September since the March 2011 disaster, the government reported Monday, driven down by a drop in auto sales after the end of government subsidies for fuel-efficient cars. While overall retail sales rose 0.4% from a year earlier, compared with the previous month, seasonally adjusted retail fell 3.6% from August. That was the largest drop since last year's earthquake and tsunami and the ensuing nuclear accident. The September fall was the third-largest on-month decrease since January 2002, when the government began using the current evaluation method, an official with the Ministry of Economy, Trade and Industry said. The figures released by the ministry showed that auto sales were down 1.6% after 11 months of double-digit increase. The drop accompanied the end of government subsidies for fuel-efficient cars last month.

Bank of Japan Announces Fresh Economic Stimulus - The Japanese central bank announced fresh measures on Tuesday to ease monetary policy, stepping up its bid to fend off recession in the world’s third-largest economy after the United States and China. The Bank of Japan, under pressure from the government to act more decisively to halt the economy’s slide, said in a statement that it would add ¥11 trillion, or $138.5 billion, to an asset-buying program that has become its main monetary policy tool. The bank will also set up a new loan program to supply banks with cheap long-term funds, a bid to pump more money into the Japanese economy to encourage growth. As expected, the bank decided to keep its benchmark interest rate at a range of 0 percent to 0.1 percent. The Bank of Japan’s governor, Masaaki Shirakawa, said that the easing measures would stay in place until Japan achieved an inflation level of at least 1 percent. The measures come as Japan confronts economic data that suggest its fragile recovery is threatened. The economy grew at a healthy clip earlier this year, helped by the huge reconstruction effort that followed the 2011 earthquake and tsunami. But a slowdown in exports and industrial output, brought about by the global slowdown and a continued territorial spat with China, a major trading partner, is threatening to hobble that growth.

Bank of Japan Expands Stimulus as GDP Poised to Decline - The Bank of Japan expanded its asset-purchase program for the second time in two months, a move that failed to cheer investors as stocks slumped amid mounting evidence that the economy contracted last quarter. The fund will increase by 11 trillion yen ($138 billion) to 66 trillion yen while a separate credit loan program will stay at 25 trillion yen, the bank said in Tokyo, acting hours after data showed the biggest decline in industrial output since last year’s earthquake. The BOJ will also offer unlimited loans to banks to boost credit demand. The Nikkei 225 Stock Average closed 1 percent lower and the yen strengthened after the policy decision, while BOJ forecasts showing that the central bank will miss its inflation target for the next two fiscal years added to signs of weakness. Economy Minister Seiji Maehara attended his second BOJ meeting today and, in a joint statement with Governor Masaaki Shirakawa, said that the government “strongly expects” powerful easing until deflation is overcome.

When ¥11 Trillion Is Not Enough: Japan's QE 9 Disappoints, Halflife Zero, Time For QE 10 It was only yesterday that we pointed out the ever decreasing halflives of central bank interventions. We are grateful that none other than the biggest intervention basket case of all came out and proved us 100% correct, when the BOJ announced none other than QE 9 just one month after the impact from QE 8 fizzled about 8 hours after it was disclosed. This time around, the destructive "benefit" to the JPY was negative from the first second, resulting in the first instance of monetary easing that.. wasn't. Japan just came up with a brand new New Normal concept: tightening through easing, when its ¥11 trillion intervention proved to be woefully insufficient for a market addicted to ever more liquidity injections.

Weak fundamentals and negative sentiment contribute to yen weakness - The yen continues to be driven lower by Japan's fundamentals. And unlike in previous periods, the yen has often declined recently even when the S&P500 was lower. JPY is losing its status of a safe haven currency (see discussion). Yes, this seems to be a difficult concept for some FX traders, but that has been the reality for now. There are just too many fundamental risks to be long the yen these days (see discussion).And traders in fact have turned increasingly short the yen as seen from the speculative exposures in the futures markets. NASDAQ: - The net amount of investor cash betting the yen would fall more than doubled in the past week, government data showed Friday. As of Oct. 30, investors had increased their net short yen position to $5.8 billion, the largest short yen position since May 8. The previous week investors held a net $2.8 billion short yen position, according to the Commodity Futures Trading Commission. Here is the latest from the CFTC.

India Cuts Reserve Ratio to Back Growth Push; Holds Key Rate -- India’s central bank cut lenders’ reserve requirements to back a policy revamp by the government aimed at reviving growth, while leaving interest rates unchanged to fight price pressures. Governor Duvvuri Subbarao reduced the cash reserve ratio to 4.25 percent from 4.5 percent, adding about 175 billion rupees ($3.2 billion) to the banking system, the Reserve Bank of India said in Mumbai today. The cut to a 36-year low, the fourth this year, was predicted by 19 of 33 analysts in a Bloomberg News survey, while four expected 4 percent and the rest no change. India faces inflation of almost 8 percent, curbing scope to join nations from Brazil to Thailand in extending rate cuts as the global recovery falters. While the central bank resisted Finance Minister Palaniappan Chidambaram’s call for cheaper credit to back the policy overhaul, which includes steps to pare a budget deficit, it said there is a “reasonable likelihood” of further easing in January-to-March as inflation cools.

Tackling the Myth of Indian Inefficiency (Sort of) - A couple of weeks ago, I tried to convince the world that China isn’t as efficient as many believe. Now I’m about to take on an even more daunting challenge — making the case that India isn’t quite as inefficient as most people insist. How can India, with its cow-lined roadways and infamously entrenched bureaucracy, even come close to the slick, high-speed railways and directed policymaking of China? Those same people who praise the modern transport and quick decisionmaking of China often go on to criticize India for its miserable infrastructure and plodding reform efforts. India’s fractious democratic political system, the critique goes, compares poorly with China’s more clinical authoritarian regime when it comes to implementing tough economic policies and building necessary roads and airports.Is the comparison fair?To a great degree, yes. Reform in India has often ebbed and flowed on the unpredictable tides of electoral politics. While villagers in China can get cleared away to build a new road, villagers in India have rights to protect their interests and their land, slowing down the pace of development. India’s overly bureaucratic bureaucracy ties up power projects and other important investments in regulatory knots. Consulting firm McKinsey figures that completing a power plant in India takes about twice as long as in China. In the World Bank’s rankings of countries by ease of doing business, China, at 91, sits well ahead of India, at 132. These hurdles are having a detrimental impact on India’s growth and are big reasons why India’s development has trailed China’s.

What’s Troubling India? - Kenneth Rogoff - India’s recent fall from macroeconomic grace is a lamentable turn of events. After many years of outperformance, GDP growth has slowed sharply. Annual output will most likely rise by less than 5% this year, down from 6.8% in 2011 and 10.1% in 2010. Reform has stalled amid profound political paralysis. All of the major emerging economies face weakening external demand, but India’s slowdown has been exacerbated by a drop in investment that reflects a deeper loss of official direction and business confidence. Even the International Monetary Fund’s forecast of a modest improvement in 2013 is predicated on the government’s ability to breathe life into a spate of stalled economic reforms. India’s recent torpor has underpinned a remarkable shift in global opinion. Just a couple of years ago, India was developing a reputation as the cool place to invest. Heads of state tripped over one another to meet business leaders in Mumbai, hoping to pave the way for a significant expansion of trade and investment. Now their interest has faded, along with the macroeconomic numbers. And yet changes currently afoot might just turn things around. India’s octogenarian prime minister, Manmohan Singh, has recently awakened to the desperate need for renewed momentum. Economists around the world have taken note of the arrival of Raghuram Rajan as chief economist in the finance ministry. Rajan is a superstar academic researcher, a brilliant writer on political economy, and a former chief economist for the IMF. But it is far from obvious that Sonia Gandhi, President of the Indian National Congress and the country’s most powerful politician, shares Singh’s reform agenda

Higher jobless rate predicted by budget watchdog - Canada's budget watchdog predicts the country’s unemployment rate will rise next year, the result of slower-than-expected economic growth. Parliamentary Budget Officer Kevin Page maintained his outlook for the economy this year but lowered it for it for 2013 and 2014 in a new report Monday and predicted the Bank of Canada won’t raise its benchmark interest rate until early 2015. "With inflationary pressures well contained and Consumer Price Index (CPI) inflation remaining below its two per cent target, PBO expects the Bank of Canada to maintain its policy interest rate at one per cent through the first quarter of 2015," it said. The PBO forecast growth in real gross domestic product of 1.9 per cent this year, 1.5 per cent next year, down from the 1.6 per cent growth prediction in its April outlook, and two per cent for 2014, a drop from 2.2 per cent. That would translate into a drop in the value of all goods and services produced in the Canadian economy annually of about $22 billion.

Vital Signs Chart: Slowing Global Trade - Global trade slowed in the summer. The volume of goods sold across borders slipped by 0.4% in August, after a similar drop in July, reflecting weak demand tied to troubles in Europe and slower growth in China. In the U.S., exports declined in the third quarter for the first time in more than three years, while imports also contracted, although less drastically.

Poland caught between the Eurozone's recession and mistrust of Russia - Poland is in a difficult spot economically. On one hand it is heavily dependent on orders from the Eurozone - many Eurozone-based businesses have used Poland for its lower cost manufacturing. But as the Eurozone fell into "disrepair", the orders slowed.HSBC:/Markit: - Polish manufacturing output fell for the sixth successive month in October, albeit at a slightly softer rate. The latest drop in new orders and a further marked decline in backlogs strongly suggested ongoing falls in production at the end of the year. Firms cut capacity in October in response to reduced workloads. Manufacturing employment declined for the second month in succession, and at the fastest rate since October 2009. Meanwhile, purchasing activity contracted for the ninth month running. Subsequently, pre-production stocks fell at the strongest pace since January 2010. Firms also reduced warehouse stocks of final goods, and at the fastest rate since May.

“The Return to Growth Should Not Come at Any Price” - Before 2008, we based our growth on what turned out to be a global Ponzi scheme; a global surplus recycling mechanism that was bound to buckle under its own hubris. Aided and abetted by what I term toxic economic theory (a particularly pernicious form of ideology), the US, Britain and the Eurozone were pretending to be living the dream of some Great Moderation – when the reality could not have been more immoderate. After 2008, Post-Credit Crunch, both Europe and Britain turned to Ponzi Austerity, pretending that growth will come when new debts are created on condition of more income-sapping, universal austerity – hoping to free-ride on growth that comes from America or Asia. Alas, it won’t happen. Europe cannot eschew its responsibility to help restore global growth. However, while designing the Recovery, we better beware: The return to growth should not come at any price. What grows matters. We want growth in sectors that generate good things that humanity needs more of and a deep deflation of the toxic sectors that make life nasty, brutish and short – from physical pollutants to real estate bubbles and toxic derivatives. We must aim at the mobilisation of idle savings into medium to long-term investments that serve genuine human needs – rather than producing new bubbles for the purpose of dealing with the ill effects of previous bubbles that burst disastrously. None of this will be accomplished by markets caught up in an equilibrium of fear that is reinforced daily by universal austerity. Equally, none of it will happen unless public investment takes markets seriously.

Greek Editor Is Arrested After Publishing a List of Swiss Bank Accounts - The Greek police arrested and then quickly released the owner and editor of a respected investigative magazine on Sunday morning hours after he published a list of more than 2,000 Greeks who were said to have accounts at a bank in Switzerland, throwing new controversy into a scandal over whether the government is actively pursuing suspected tax cheats. The dramatic moves, which tens of thousands of Greeks were following on the Internet, came days before Greece’s European partners were to meet to decide whether to grant tens of billions of euros in new aid to the financially struggling nation. Greece’s lenders have long said that the government must crack down on tax evasion to be eligible for more aid. The police said they had been ordered to take the editor, Kostas Vaxevanis, who runs Hot Doc magazine and who is one of the nation’s most famous investigative journalists, into custody on misdemeanor charges. The Greek news media reported that the charges concerned the violation of the privacy of those on the list. Mr. Vaxevanis posted a message to his Twitter account early Sunday saying that 15 officers had surrounded the home of a friend with whom he had been staying “like Greek storm troopers in German uniforms.”

Troika Wants Greek Debt Restructuring - Greece would be allowed to impose losses on its public investors the same way it did to private investors in a desperate bid to write down debt, officials from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) has proposed, according to the German news magazine Der Spiegel. Under a previous government, Greece earlier hit bondholders with 74 percent losses, nearly wiping out Cyprus’ banks and requiring the government there to seek a bailout as well. That effectively locked the country out of private markets, leaving it dependent on aid from the Troika. The Frankfurt-based ECB, which owns 40 billion euros ($51.5 billion) of Greek government bonds, isn’t allowed to take part in the restructuring. Instead, the central bank would “make available” any profit it makes on the bonds, Spiegel said. The Troika, according to the report, is willing to accept a so-called “haircut” because Greece’s economy is still floundering despite $325 billion in two bailouts, the Private Sector Involvement (PSI) debt write-down of $134 billion, and more than 2 ½ years of austerity measures that have worsened the country’s five-year recession, putting nearly two million people out of work, closing 68,000 businesses, and shrinking the economy by 7 percent.

German finance minister rules out Greek debt "haircut" - German Finance Minister Wolfgang Schaeuble ruled out public investors accepting a debt restructuring, or "haircut", on their Greek bonds but said in an interview to be aired on Sunday that a debt repurchasing program could be considered. "(A haircut) is a discussion that has little to do with the reality in the member states of the euro zone," Schaeuble said in an interview with Deutschlandfunk radio. Schaeuble said sovereign states could legally not write off billions of euros of losses on their official holdings of Greek government bonds. Schaeuble reiterated no agreement had been made on how to help Greece implement austerity cuts after Stournaras said international lenders had given Athens more time and a package of austerity measures would be put to parliament next week. Any agreement with near-bankrupt Greece would have to be sustainable - last longer than six months - and be trusted by financial markets.

More Greek Tragedy - The economic and political troubles of Greece appear to have no end. The “plan” for the country under the original Troika program was for government debt to GDP to decline to 120% by 2020 under a framework of internal devaluation supported by external funding. As we now know the assumptions of this program were based woefully incorrect and now, even after a private sector write-down on sovereign paper, debt to GDP is nearly 170% and increasing. At this point even the most optimistic predictions suggest it will take Greece at least another decade past the target date to reach the initial goals and even then it is dependent on increases in external funding. I’ve stated previously that providing additional loans to Greece is completely counterproductive for the country’s creditors and what is required is an additional debt write-off. Last week the Troika suggested just that, pre-empting its own official report on its mission in Greece which is likely to show significant slippage in both estimates and policy implementation. The issue is that the ECB has already stated that it is unwilling to participate in any debt write-off, although it may forgo profits made on its existing holdings, and other non-private creditors have little appetite for write-offs preferring to focus on plans to kick the can down the road again:

Germany rattled as losses loom in Greece - The EU-IMF Troika of inspectors in Greece has called on European bodies and official creditors to write off a chunk of their loans, opening the way for first taxpayer losses since the sovereign debt crisis began. A draft version of the Troika report obtained by Spiegel magazine said EMU governments and the European Central Bank must accept their share of losses in order to bring Greece’s public debt back to 120pc of GDP by 2020, deemed the sustainable level. Greece must carry out a further 150 reforms, some involving a drastic loss of sovereignty. Troika payments will be held frozen in a special account under creditor control. The Troika will have power to raise taxes automatically. There must be new laws to make it easier to fire workers and adjust the minumum wage. In exchange, Greece should be given two extra years until 2016 to meet budget targets, costing up to €38bn. German finance minister Wolfgang Schauble said over the weekend that taxpayer "haircuts" were unthinkable. "The question has very little to do with the reality in eurozone member states," he said.

Golden Dawn Anti-Semitic Parliamentary Address - Greek MP Ilias Kasidiaris, the extremist Golden Dawn party's spokesman – who in July physically attacked a female lawmaker on live TV – is really starting to live up to the party's reputation as a "neo-Nazi" group. The group has taken to the streets, terrorizing immigrants, and the police are reportedly colluding with them. Meanwhile, Golden Dawn is surging in popularity among the Greek electorate – it now polls as the third-biggest political party. In the latest disturbing episode to emerge from the chambers of the Greek parliament, Kasidiaris read aloud a passage from The Protocols of the Elders of Zion, an anti-Semitic propaganda piece circulated and mandated in classrooms by the Nazis during that party's rise to power in 1930s Germany. It was also one of Hitler's key "justifications" for the Holocaust. Israeli newspaper Haaretz has the story: Ilias Kasidiaris, a spokesperson for Golden Dawn, read out Protocol 19 from the book: "In order to destroy the prestige of heroism we shall send them for trial in the category of theft, murder and every kind of abominable and filthy crime," according to Panayote Dimitras of the Greek Helsinki Monitor.Kasidiaris was addressing parliament on October 23 at a discussion on lifting his immunity in connection with suspicions of assault. “There was absolutely no reaction” to this in parliament, Dimitras said, which, makes “all parties held as accomplices.”

Greece Coalition Splinters, Austerity Vote Delayed, PM Warns of 'Chaos'; Another Puppet Show or Is This For Real? - In Greece, Prime Minister Antonis Samaras coalition has split. The result is yet another delay in an austerity vote required for the next tranche of loans to Greece, and the PM warns of 'chaos'. Greece's conservative Prime Minister Antonis Samaras is at odds with the Democratic Left party, a coalition partner, which is threatening to vote against the new austerity measures unless labor reforms included in them are scrapped. Samaras formed a coalition with the traditional rival Socialists and the Democratic Left after general elections in June. In a statement, the prime minister said he had "exhausted all the available time" to try and reach a consensus. "The problem is not whether we (introduce) this measure or that measure. On the contrary: It is what we would do if no agreement is reached and the country is led into chaos." Unemployment in Greece has topped 25 percent, with rapidly worsening poverty that has prompted the Democratic Left to harden its position.

Greek PM Warns of Chaos if Austerity Blocked - Greek Prime Minister Antonis Samaras sent a stark message to his governments two junior coalition partners Tuesday, calling on them to back a 13.5 billion euro ($17.4 billion) austerity and reforms package or otherwise see the country being led into "chaos." In a bid to end uncertainty over the austerity mix being demanded by Greece&apos;s international creditors in exchange for further aid, Samaras said talks on the cuts and tax hikes have ended and that his government did the best it could. "The problem from now on is not this or that measure. The problem is the exact opposite: what could happen if the agreement does not pass and the country is led into chaos," he said in a statement. After weeks of negotiations with a troika of international inspectors, Greece came close to agreeing on the cuts to be implemented over the next two years, however, talks stumbled after junior coalition partner Democratic Left rejected several labor reforms included in the deal. Last week, Fotis Kouvelis, head of the small Democratic Left party, said neither he nor any member of his party would vote for the labor reforms, raising concerns about the cohesion of Greece&apos;s fragile three-party coalition, which also includes the conservative New Democracy party and Pasok.

Europe’s Crisis Spawns Calls for a Breakup—of Spain This vibrant northern region of Catalonia has long been known as the "factory of Spain" for generating wealth that helped sustain the entire nation. Now Catalonia, beaten down by years of recession, has become the battleground in what threatens to become an economic civil war. In protests large and small, hundreds of thousands of Catalans are embracing a stark proposition: Only by breaking ties with Spain and becoming an independent country can Catalonia free itself from economic malaise. Catalans go to the polls Nov. 25 for a regional parliamentary election, and polls show pro-independence parties in front. "Madrid has been draining us dry for too long," Spain's internal struggle echoes a larger debate convulsing the euro zone itself, as wealthier northern nations complain about supporting poorer southern ones. But now, as Europe enters its fifth year of crisis, the economic strains are deepening the fractures within some nations. In Spain and Belgium, and to a degree Italy, local and national governments are battling over how to allocate scarce resources. Even within Germany, which is economically stronger and politically stable, richer areas are grumbling about the cost of subsidizing the poorer areas.

Spain Sept retail sales fall 10.9 y/y after VAT hike (Reuters) - Spanish retail sales fell 10.9 percent year-on-year on a calendar-adjusted basis in September, official data showed on Monday, after a revised fall of 2 percent in August and following an increase in sales taxes from Sept. 1. The data from the National Statistics Institute marked the 27th month in a row of falling retail sales data.

Spain retail sales decimated by VAT hike - Spanish retail sales fell at their fastest pace on record in September as already battered consumer confidence took another hit from a hike in value added tax, driving many shoppers to trade down to cheaper products. Sales fell 10.9 percent year on year, Monday's National Statistics Institute data showed, reflecting an economy struggling through its second recession in three years and plagued by chronically high unemployment. The drop was the biggest in calendar-adjusted terms since current records began in January 2004, and marked the 27th monthly decline in a row. "It's clear there are no signs the crisis is abating," "The headline (retail) figures show a sharp drop and indicate that domestic demand is not going to be anywhere near what the government is anticipating."

Spanish Contraction Continues, Austerity Spurs Inflation - Spain’s economy contracted for a fifth quarter, undermining efforts to plug the budget deficit that’s pushing the nation closer to a bailout, while austerity measures kept inflation at a 17-month high. Gross domestic product declined 0.3 percent in the three months through September, compared with 0.4 percent the prior quarter, the National Statistics Institute said today. That compared with the Bank of Spain’s estimate on Oct. 23 of a 0.4 percent contraction. Consumer prices, rose 3.5 percent from a year earlier, Madrid-based INE said. The prolongation of Spain’s five-year slump, which is prompting record loan defaults at the nation’s banks and job cuts at companies including Gamesa SA (GAM), adds to pressure on Prime Minister Mariano Rajoy as he resists requesting international aid. While the tax hikes he’s implementing as part of his austerity program are depressing consumption, they are also spurring inflation, which threatens to add 3 billion euros ($3.9 billion) to the country’s pension bill. “The real discussion should be about how protracted the recession will be and if you look at the fiscal tightening you really have to be conservative about next year,”

Spanish banks sap profits with "desperate" price war (Reuters) - A new price war among Spain's banks risks destroying already eroded profit margins by offering depositors ever higher interest rates to win new customers, in a desperate battle for capital they can't get elsewhere. While the healthiest banks such as Santander and BBVA are not as aggressive in this fight, having already benefited from capital flight from weaker rivals, many have been cranking up deposit rates to win customers since Spain's central bank lifted penalties on high interest offers in August. The banks had found ways around the restrictions by encouraging clients to withdraw deposits to buy the banks' own, riskier short-term debt, which is not protected by the schemes that guarantee conventional bank accounts. That helped push private sector deposits to a more than three-year low in August, making it look as if money was streaming out of Spain's banks. With many of the banks unable to raise cash on the money markets while Spain sits at the centre of the euro zone debt crisis, they are now forced to woo depositors with annual rates over 4 percent - and as high as 8 percent in one extreme case - well above the euro zone average of 2.7 percent for two-year cash.

"Deposit Wars" an Act of Desperation by Spanish Banks; Bankia Déjà Vu - Looking for the next major thing in Spain to blow sky high? I have a strong candidate in mind. Bank deposits are down 154 billion euros this year and banks have resorted to paying unsustainable interest rates as high as 8% to attract money. Via Google translate from El Economista, please consider war rages over deposits: Spanish banks are "desperate" A new war between Spanish banks deposits threatens to destroy their already depleted profit margins by offering higher interest to depositors to attract new customers in a desperate battle for scarce capital. Entities found new ways to avoid legal restrictions and encourage customers to leave deposits to buy notes, products which are not protected by the Deposit Guarantee Fund. Spain is in the spotlight of the debt crisis in the euro zone and many of its banks are unable to raise money in financial markets, forcing them to attract customers with deposits with annual rates above 4%, and that in some extreme cases reach 8% - a figure well above the average rates in the euro zone, amounting to 2.7% within two years.

Rajoy Faces Bailout Split With Monti at Madrid Meeting - Italian Prime Minister Mario Monti and Spanish counterpart Mariano Rajoy may try to mask a growing divide over Europe’s new bailout strategy when they meet today. While both have jointly argued against extra budget austerity as the price for help from the European Central Bank, their interests diverge when it comes to whether they should ask for assistance together. A go-it-alone strategy by Spain would probably cut Italy’s borrowing costs while leaving Rajoy to weather the political flak of seeking emergency funds. “Rajoy was probably pressed by Monti in August to accept a pre-emptive” bailout, said Gilles Moec, co-chief European economist at Deutsche Bank AG in London. “It would have made things so much smoother in Europe and for Italy as well. Rajoy is very much following his own route now.” European officials are waiting for Spain to trigger a bailout plan unveiled by ECB President Mario Draghi last month and designed to draw a line under the region’s debt crisis. While Draghi’s plan to buy potentially unlimited quantities of government debt has soothed markets for now, a botched Spanish rescue could still trigger further turmoil.

What is Rajoy Waiting For ? Some Thoughts - Spanish Prime Minister Rajoy has continued to indicate that he will formally request more assistance when it is in the country's interest, which essentially means, when he is good and ready. And he is not now. Following his meeting with Italy's Monti, Rajoy was quite candid. "The most important thing", Bloomberg quotes him saying, " is that the mechanism is there. He is acknowledging the actual value of the Outright Market Transactions (OMT) lies in its presence not operation. Yet there is only so long that the market affections can be toyed with. The poor performance of Spanish bonds last week and the continued selling pressure today suggests investors patience is running thin. Draghi and the ECB had given Spain a reprieve in the form of the LTROs and the OMT. Spanish bank deposits rose in September and anecdotal reports suggest a modest increase in foreign participation in the government auctions. Fitch's survey of the top ten US money market funds also found new exposure to European banks. Rajoy is obviously and understandably reluctant to ask for broader assistance. And why should it? It still has access to the capital markets. That identifies the first condition that would likely force Rajoy's hand, namely, a dramatic rise in interest rates.

Italy ex-PM Berlusconi threatens to topple Monti government: Italian ex-PM Silvio Berlusconi has threatened to bring down the government of technocrats led by Mario Monti. Mr Berlusconi said the cabinet was leading Italy into a "spiral of recession" and that his centre-right PDL party would decide in the coming days whether it would end its support. It is the largest party in parliament and the move could trigger early polls. Mr Berlusconi was forced to step down last year. His comments come a day after he was found guilty of tax fraud. He is expected to appeal against the four-year-jail sentence - reduced to one - on charges of inflating the price of distribution rights bought by his Mediaset group to avoid paying taxes.

As Thousands Of Italians March Against Austerity On "No Monti Day", Berlusconi Threatens To Scuttle Monti Government - First, it was Greece who failed to stick with the "do not rock the boat until the US election" script so meticulously crafted by Tim Geithner, and now it is Italy's turn as Europe threatens to come unhinged precisely in the week when complete peace and quiet is needed to avoid deflecting attention from the peak season of the US presidential theater. As Reuters reports, "Tens of thousands of people marched through Rome in a "No Monti Day" on Saturday, some throwing eggs and spraying graffiti to protest against austerity measures introduced by Prime Minister Mario Monti's government. Appointed in November when Italy risked being sucked into the euro zone debt crisis, Monti has pushed through painful austerity measures to cut the country's massive debt, including tax hikes, spending cuts and a pension overhaul. "We are here against Monti and his politics, the same politics as all over Europe, that brought Greece to its knees and that are destroying half of Europe, public schools, health care," said demonstrator Giorgio Cremaschi... In another demonstration in northern Italy, a small group of protesters scuffled with police near where Monti was addressing a rally on the theme of family values."

Berlusconi threat to topple Monti shows party divisions (Reuters) - Former premier Silvio Berlusconi's threat to bring down Italy's government underscores deep divisions in his center-right party ahead of next year's elections and risks rattling markets which see Prime Minister Monti as Italy's saviour. Berlusconi made the unexpected threat on Saturday, still fuming from his conviction 24 hours earlier on charges of tax fraud and a jail sentence of four years which he will not have to serve until all appeals are exhausted. In a hastily called news conference he attacked the magistrates who convicted him as part of a caste of leftist "dictators" a vitriolic charge he has leveled many times before. But then he trained his sights on Prime Minister Mario Monti's economic policies. "We have to recognize the fact that the initiative of this government is a continuation of a spiral of recession for our economy. Together with my collaborators we will decide in the next few days whether it is better to immediately withdraw our confidence in this government or keep it, given the elections that are scheduled," he said. Only three days earlier, when he announced he would not be a candidate for prime minister in next April's elections, Berlusconi said the Monti government had "done much" and was going "generally" in the right direction. The Monti government of non-elected technocrats is supported by the center-left, the center-right and the center. It would lose its majority and have to resign if most of Berlusconi's PDL party withdrew support.

Is Berlusconi - in spite of his shady reputation - contemplating a move back into politics? - Silvio Berlusconi has been a supporter of Monti's government until recently. But there is a possibility the former Prime Minister may decide to re-enter politics once again. This is particularly troubling, not only due to the risk of Berlusconi rolling back Monti's austerity measures but also because the man is a crook - there simply isn't another way to put it. On Friday he was convicted of tax fraud by a court in Milan. OK, that happens to a politician or two. But this is not the first time for Mr. Berlusconi.WSJ: - This is Mr. Berlusconi's fifth conviction since 1990, though so far he's managed to avoid his sentences for alleged perjury, corruption and false accounting, thanks to amnesty laws, successful appeals and expired statutes of limitations. Friday's sentence has already been reduced to one year, and despite the verdict, he won't set a foot in jail until his lawyers exhaust Italy's appeal process, which could take years. Even if the expected appeal fails, the proceedings may well let Mr. Berlusconi run out the statute of limitations on tax fraud. He has also been pulled into another trial that involves his relationship with an underage woman - which of course he denies. What's amazing however is that in spite of all this, Mr. Berlusconi could in fact garner enough political support to run in the next election.

EU Bureaucracy has Lost Control of Italy; Social Mood Turns Black - In Italy, former prime minister Silvio Berlusconi waged a full frontal attack on technocrat prime minister Mario Monti, Germany, Angela Merkel and the EU imposed austerity during a 1.5 hours press conference near Milan. The problem for Brussels is Berlusconi can force a vote because by withdrawing his support to Monti's government. The People of Liberty party needs to consider that "with a no-confidence vote by us, we would determine a situation that would be interpreted in a certain way by the financial markets and would cause early elections," Berlusconi told reporters yesterday near Milan. "We will consider these facts and decide whether to immediately withdraw our support of the government." Such a step would likely force President Giorgio Napolitano to call early elections, before a vote due by May. It also would probably fan Europe's debt crisis, as Monti's austerity policies have contributed to a decline in Italy's bond yields, with markets more focused on Spain in recent months. "It's impossible to say what is in Berlusconi's head now, but if he decides to end his support to Monti, early elections become almost inevitable," . "Berlusconi would lose the elections anyway, but would likely get more votes thanks to an anti-austerity platform and that would increase his party's bargaining power in the next parliament." In Sicily, exit polls show the candidate of Beppe Grillo's Movimento 5 Stelle (Giancarlo Cancellieri) as the winner for the Regional Governor position with 27% of the votes.

The EC can claim "success" in CDS regulation - Bloomberg finally picked up the story discussed here a couple weeks back on the dying sovereign CDS market in the Eurozone. Bloomberg: - European Union rules to curb speculation on government debt are prompting an exodus from credit-default swaps, making it harder for investors to insure bonds and threatening to boost sovereign borrowing costs. Trading has dried up on the Markit iTraxx SovX Western Europe Index that was created in 2009 to help investors mitigate government credit risk following the worst financial crisis since the Great Depression. The volume of deals on the 14 nations now included in the measure fell 20 percent from last year’s peak to $108 billion, the lowest since April 2010, The European Commission, in its goal to decrease transparency into the health of European sovereigns, destroyed liquidity in this market. The extraordinarily naive view of the regulatory authorities of how this and other markets function is astounding and dangerous. Somehow they think that if one bank holds sovereign bonds, it will go to another bank and buy protection on those bonds. And if the bonds default the protection buyer will be compensated. That's silly. Both the buyer and the seller of protection will only enter into such agreement if there is an active two way market out there - they both need the ability to get out of this position at any time. The buyer for example may sell those bonds and will need the ability to sell the CDS as well. But the "naked short ban" killed one side of the market, taking out a big segment of protection buyers. The limited numbers of protection buyers simply took many participants out of the market altogether as liquidity risk made any participation dangerous. Indeed this effect is visible in the DTCC data (for those interested, here is the link - it is by no means easy to find). The Markit iTraxx SovX Western Europe - Series 7 (the latest contract) volumes have collapsed. Below is the 4-week moving average volume of the volume over the life of the contract. In the first week of trading for SovXWE-7 about a billion worth of contracts traded. A week ago 40 million traded.

Euro-Area Unemployment Rises to Record, Inflation Slows - The euro-area jobless rate climbed to a record in September as the fiscal crisis and tougher austerity measures threatened to deepen the economy’s slump. Unemployment in the 17-nation region rose to 11.6 percent from 11.5 percent in August, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995. The data also showed that youth unemployment is at 23.3 percent, with Spain’s rate more than double that, at 54.2 percent. A separate report showed inflation cooled to 2.5 percent in October from 2.6 percent. The debt crisis has pushed at least five euro nations into recessions and eroded investor and business confidence, forcing companies to cut costs to help weather the turmoil. Economic confidence in the region fell in October, according to a report yesterday, while data today French consumer spending rose less than economists forecast in September.

Eurozone Unemployment Rises to New Record -Unemployment in the 17-country eurozone rose to a record of 11.6 percent in September as large parts of the region slide toward recession. The rate reported by Eurostat, the EU’s statistics office, on Wednesday is an increase from an upwardly-revised 11.5 percent in August. Spain has the highest unemployment rate in the eurozone at 25.8 percent. Greece is not far behind at 25.1 percent, though its figure relates to July. Both countries, which are at the epicenter of Europe’s three-year debt crisis, have youth unemployment above 50 percent. Separately, Eurostat reported that inflation in the eurozone fell modestly to 2.5 percent in the year to October, from the previous month’s 2.6 percent. Inflation is still above the European Central Bank’s target of just below 2 percent.

Eurozone unemployment hits new high - Unemployment in the eurozone has risen to a new record, with more than one in four out of work in Spain and Greece. There are now 18.49 million people without jobs in the 17 countries sharing the euro, said the European statistics office Eurostat on Wednesday with an extra 146,000 joining the ranks of the unemployed last month. Youth unemployment – joblessness among under-25s – rose to 23.3%, up from 21% during the same month a year ago. The prospect of high and rising unemployment, especially among younger workers, is expected to persuade the European Central Bank to cut interest rates in the new year from the current record low of 0.75% to support the flagging economy, which probably slumped back to recession in the third quarter, analysts said. But in contrast to the hope of stimulus from the ECB, Brussels and most eurozone governments have put cuts in spending ahead of schemes to create jobs, despite predictions that the situation will worsen over the coming months.

The euro zone isn't working - IF YOU haven't already seen it, here is today's Daily chart: The euro-area unemployment rate ticked up to 11.6% in September, up 1.3 percentage points from a year before. There are 18.5m unemployed adults between the age of 15 and 64, over 2m more than there were a year ago. Youth unemployment rates in Greece and Spain are 55.6% and 54.2%, respectively. But peripheral bond yields are down, so presumably all is well.

ECB Actions are Borne of Necessity - In recent months, both the U.S. Federal Reserve and European Central Bank (ECB) have embraced additional unconventional policy measures to address chronic problems plaguing their respective economies. While the two strategies are often conflated, the Fed and ECB are attempting to address very different problems. Whereas the Fed is taking discretionary action to accelerate the recovery and combat chronic underemployment, the ECB has been forced to act to salvage the currency union. In many ways, the recent ECB policy actions are actually quite similar to the Fed’s initial round of quantitative easing in 2008. Just as the Fed was forced in 2008 to buy large quantities of debt issued by Fannie Mae and Freddie Mac to convince market participants that these obligations were free of credit risk, the ECB now has no choice but to stand behind the debt of “peripheral” governments. “Credit risk” refers to the possibility that a borrower will fail to make contractually promised payments in full. The risk generally does not apply to sovereign borrowers (i.e. governments) that are able to borrow in their own currencies. No matter how indebted the government, it poses no credit risk when it borrows in a currency that it can print. In these cases, the government essentially issues interest-bearing (bonds) and non-interest-bearing liabilities (currency) and can issue more of the latter whenever necessary to avoid default. Of course, heavy reliance on money printing – debt monetization – can generate significant inflation and steep declines in the foreign exchange value of the currency, but these possibilities are analytically distinct from credit risk.

German Retail Sales Increased for a Second Month in September - German retail sales increased for a second month in September as rising wages and unemployment near a two-decade low boosted consumer confidence. Sales, adjusted for inflation and seasonal swings, rose 1.5 percent from August, when they advanced 0.1 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 0.3 percent, according to the median of 17 estimates in a Bloomberg News survey. Sales dropped 3.1 percent from a year earlier, due partly to the fact that September 2011 had one more shopping day. While Germany’s jobless rate rose for the first time in three years in September, at 6.9 percent it is still close to the lowest since reunification. That will help to drive consumer sentiment to a five-year high in November, market research company GfK predicted last week. Still, business confidence is at a 2 1/2 year low as the debt crisis curbs exports and damps growth in Europe’s largest economy.

Hungary 'to offer wealthy foreigners citizenship in return for investment' - Hungary is planning to offer citizenship to any foreigner who buys at least £200,000 of its government’s bonds. Legislation would grant residency and ultimately a Hungarian passport... allowing the holder to live and work anywhere in the European Union. The move, backed by the ruling party, is aimed at wealthy investors, especially from China.Hungary has billions of pounds of foreign currency debt maturing in the next few years and needs to find ways to refinance it. Budapest has asked for help from the EU and the International Monetary Fund but talks are dragging on and analysts see only a 50 per cent chance of a deal.

Portugal government seeks opposition support for more spending cuts (Reuters) - Portugal's government is seeking support from the main opposition party for 4 billion euros of new spending cuts that may need changes to the constitution to push through, the prime minister said. "We will review certain structures and functions of the state to achieve a spending reduction of 4 billion euros (by) 2014," Pedro Passos Coelho told reporters late on Monday. With the country struggling to meet the fiscal goals set under its 78 billion euro EU/IMF bailout, the premier said he would invite the opposition Socialists to join discussions on the cuts on Tuesday. A parliamentary debates on the 2013 budget bill, which would impose sweeping tax hikes and which the Socialists have said they will oppose, gets under way during the day. The government had earlier said it would work on spending cuts in addition to those already budgeted for in 2013. Next year's budget deficit goal of 4.5 percent of gross domestic product equals a gap of around 7.5 billion euros.

Portugal to introduce higher taxes to meet EU bailout terms - Portugal's parliament is expected to approve the biggest tax hikes in its modern democratic history on Wednesday, paving the way for a court fight over a budget that the government says it urgently needs to keep a €78bn (£63bn) bailout afloat. Political tension has been increasing and anti-austerity demonstrations have become more common in recent weeks in Portugal, which despite being one of the countries worst hit by the eurozone crisis had so far escaped the political unrest seen elsewhere. Prime Minister Pedro Passos Coelho's government is searching for ways to meet budget goals under its bailout terms from the European Union and International Monetary Fund, without deepening its worst recession since the 1970s. The 2013 budget's tax hikes on income, property and financial transactions are the government's third attempt to tackle the deficit since July. The constitutional court threw out a plan to cut civil servants' benefits, and a plan to hike social security payments was abandoned after street protests.

The euro is heading for a permanent state of depression - If the euro survives in its current form, then Mario Draghi, president of the European Central Bank, will surely have earned his place in the history books as one of the chief architects of its salvation. A year ago, monetary union looked as if it was heading for certain death, with the European banking system in apparent meltdown and extreme divergence in monetary conditions across the single currency area. In all but name, monetary union had already ceased to exist. Action by the ECB, first with the cash-for-debt Long Term Refinancing Operation and, more recently, the promise of unlimited bond purchases, has succeeded in stilling the waters, at least to some degree. Even a Greek exit seems, for the time being, to be off the table. With more austerity, Berlin seems minded to give Greeks another chance – until the next bail-out, in any case. But, though the single currency may have been saved from imminent death on the operating table, it seems now to be heading for a scarcely more appetising alternative – a condition of chronic, long-term illness where still very tight monetary conditions in many parts of the eurozone in combination with lockstep austerity threaten to induce a virtually permanent state of depression. Even Germany shows every sign of slipping back into economic contraction

The Other Financial Crisis - Mohamed A. El-Erian - Two variants of financial crisis continue to wreak havoc on Western economies, fueling joblessness and poverty: the one that we read about regularly in newspapers, involving governments around the world; and a less visible one at the level of small and medium-size businesses and households. Until both are addressed properly, the West will remain burdened by sluggish growth, persistently high unemployment, and excessive income and wealth inequality. The sovereign-debt crisis is well known. In order to avert a likely depression, governments around the world engaged in fiscal and monetary stimulus in the midst of the global financial crisis. They succeeded in offsetting nasty economic dislocations caused by private-sector deleveraging, but at the cost of encumbering their fiscal balances and their central banks’ balance sheets. While sovereign credit quality has deteriorated virtually across the board, and will most probably continue to do so, the implications for individual countries vary. Some Western countries – such as Greece – had fragile government accounts from the outset and tipped quickly into persistent crisis mode. There they remain, still failing to provide citizens with a light at the end of what already has been a long tunnel. Other countries had been fiscally responsible, but were overwhelmed by the liabilities that they had assumed from others (for example, Ireland’s irresponsible banks sank their budget). Still others, including the United States, faced no immediate threat but failed to make progress on longer-term issues. A few, like Germany, had built deep economic and financial resilience through years of fiscal discipline and structural reforms. It is not surprising that policy approaches have also varied. Indeed, they have shared only one, albeit crucial (and disappointing) feature: the inability to rely on rapid growth as the “safest” way to deleverage an over-indebted economy.

Greece outlines new austerity as debt load rises -- Greece's government on Wednesday outlined the new austerity measures it intends to take during the next two years, a series of painful spending cuts and tax hikes that its international bailout creditors are demanding in exchange for rescue loans. The country's finance minister also submitted a revised draft budget for 2013, with figures predicting the debt load will increase sharply as the recession deepens into a sixth straight year. Unions responded by announcing a 48-hour general strike for next week, when the new measures are expected to be voted on in Parliament. The €13.5 billion ($17.5 billion) worth of cutbacks for 2013-14 include a two-year increase in the retirement age, from the current average of 65, salary and pension cuts and another round of tax increases, including raising taxes for the interest on bank deposits from 10 to 15 percent. The vast majority of the measures, about €9.2 billion, are to be taken next year. They include a €4.6 billion cut in pensions and a €1.17 billion cut from salaries. Health-care spending will be trimmed by a further €455 million.

Greece Running Out of Cash; Government Under Threat - Greece's downward spiral has come to the top of the euro zone agenda again, with economists and analysts warning that it is closer than ever to running out of cash, and that the survival of a coalition government brought in just five months ago is under threat. "Greece is running out of cash.The current strategy is really not working and there is substantial political risk," Greece's economy has disappointed on every key metric - growth, unemployment and debt reduction - since the initial bailout terms were agreed. Its debt-to-GDP ratio, already the highest in the euro zone, will reach 189 percent, rather than 179 percent, Finance Minister Yannis Stournaras announced Wednesday. This means that the targets agreed as part of the bailout are based on over-optimistic forecasts. The country's privatization program is also not proceeding as quickly as hoped. Greece's government also wants the deadline for its primary surplus to reach 4.5 percent to be extended by two years, to 2016.

Coalition troubles in Athens - There are some worrying signs about the strength of the Greek government coalition building this week. Between voting abstentions, public disagreements and new strikes, it’s looking ever bleaker. Pasok MP Mihalis Kassis resigned from the party on Thursday morning and declared himself an independent deputy, according to Amna. Kassis suggested more departures are likely to follow as the already fraught political environment continues to worsen.The coalition only just managed to pass a privatisation law on Wednesday, with almost 30 coalition MP not backing the bill. Leaders of two of the three coalition parties — Evangelos Venizelos and Fotis Kouvelis — both abstained from the vote.Kathimerini also reported that meetings between the coalition members would be held on Wednesday evening, but because that coincided with a national strike by journalists, there seem to be no reports as to what happened in those meetings. You couldn’t make this stuff up. The worry is that all this comes just after a very public disagreement between the three party leaders on Tuesday. While the other two were in meetings, prime minister Antonis Samaras declared that the “negotiations [with the Troika] on the measures and the budget have been completed”.

New debt forecasts dash Greece hopes -- The magnitude of Greece's fiscal challenge was painted in sharp relief on Wednesday as Athens unveiled new budget projections exceeding the worst-case scenarios envisioned by international lenders when they agreed a €174bn rescue eight months ago. Instead of Greece's debt peaking at 167 per cent of economic output next year, as predicted in the March bailout agreement, it will hit 189 per cent and climb to 192 per cent in 2014, according to projections presented to the Greek parliament. Even under an "alternate scenario" prepared by the International Monetary Fund in March, which attempted to project a pessimistic economic and fiscal picture, Greece's debt was only predicted to peak at 171 per cent of gross domestic product. The new projections all but dash hopes that Greek debt will come down to 120 per cent of GDP by 2020 -- once held out as the standard for a manageable debt load -- and senior EU officials acknowledged they may have to give Athens more leeway to hit that target under a revised rescue currently being negotiated.

Bundesbank's Dombret: Greece "Way Behind" Deficit Goals - Greece is "way behind" its bailout program goals due to the standstill in consolidation and basic structural reforms, Bundesbank Executive Board member Andreas Dombret said Thursday. "Politicians and the EU are willing to assist Greece, but Greece must, first and foremost, help itself" he said in a speech at the reception of the Bundesbank Representative Office. Announcing and passing laws is not enough if the administration and the general public undermine them, Dombret said. "It is now the task of the Troika to decide impartially whether Greece meets the conditions for further assistance." The remarks came a day after the Eurozone finance ministers called on the Greek authorities to solve "remaining issues" so as to swiftly finalize the negotiations with the Troika regarding the release of the next bailout tranche worth EUR 31.5 billion.

Germany Sees No Decision on Greek Aid Nov 12 - German Finance Ministry Officials - Germany doesnt expect any decision on whether to dispense the next tranche of aid to Greece when European finance ministers meet in Brussels later this month, according to senior German finance ministry officials who said Thursday that Greece still has several points to clear up beforehand. The officials said the most pressing issue was that Greece implement conditions imposed on it in exchange for a 173 billion euro ($224 billion) rescue package to create a credible perspective for long-term debt sustainability, a senior finance ministry official told reporters. "There are a series of points that need to be discussed further," he said, highlighting the list of prior actions that Greece must take to receive aid, a plan to lower its debt, and a credible plan for "long-term financing (of the budget) not just in November." A decision is unlikely on Nov. 12 because of the complexity of the issues--Greece must still pass a budget for 2013 before any aid can flow--and the technical requirements to translate and evaluate Greek laws for evaluation by the experts monitoring the process, as well as the time needed to present a request for approval to Germany&apos;s parliament.

The German bloc will have to take its bitter medicine in Greece - Every detail of the Greek economy is worse than officially forecast just weeks ago. The budget unveiled this morning estimates that public debt will reach 189pc of GDP next year (not 179pc). The budget deficit will be 5.2pc (not 4.2pc). The economy will shrink 4.5pc next year (not 3.8pc). Unemployment is already 25.1pc and 55.6pc for youth. Just for the record: The EU-IMF Troika originally said that the economy would contract by just 2.6pc in 2010, before growing by 1.1pc in 2011, and 2.1pc in 2012. In fact Greek GDP contracted by 4.5pc in 2010, 6.9pc in 2011, and will shrink 6.5pc this year, and now 4.5pc next year. The cumulative error is colossal. The IMF's former deputy chief John Lipsky told an HSBC forum in London earlier this month that it was impossible for the Fund to make any accurate forecast, given the crazy circumstances in Greece. I don't wish to be unduly harsh on the IMF – a superb organisation – but actually the Greek Labour Institute and the think-tank IOVE did predict this level of contraction. The IMF simply lost its political way in Greece. It knew – or should have known from dozens on rescue operations around the world – that Greece would crash into a self-feeding spiral without a rapid debt restructuring and a devaluation

Golden Dawn: undisguised fascism in Greece - Fascist gangs are turning Athens into a city of shifting front lines, seizing on crimes and local protests to promote their own movement, by claiming to be the defenders of recession ravaged Greece. Thugs wearing the black T-shirts of the neo-Nazi Golden Dawn party are carrying out attacks on immigrant markets and in public squares, according to the United Nations, with victims speaking of areas in the capital which are now strictly off limits. Malik Abdulbasset, an Egyptian-born shopkeeper, found himself the target of one of the mobs on Wednesday night after the barber across the road was stabbed during a robbery. Golden Dawn members led a crowd of enraged locals in a protest on Mikhail Voda St that turned violent despite the presence of riot police. Ilias Panagiotaris, an MP for Golden Dawn, and a leading party figure in Athens, was unapologetic about his group's methods. "Most nations, well, not the US or Australia, have a single nationality that defines its culture and Greece must return to this ideal," he said. "The Golden Dawn is a very well organised party that is intervening to support and help people. Without us in a country where two million of ten million people are illegal, there would be chaos."

Don’t cry for me, François - French leader François Hollande is uncomfortably close to a collapse in credibility. His poll rating has sunk to 36pc. The speed of decline has been shocking. The latest broadside comes from ex-German chancellor Gerhard Schröder, supposedly his ally on the Left. "The election promises of the French president are going to shatter on the walls of economic reality," he said in Paris. The backsliding in the retirement age is indefensible and "cannot be financed". Two or three more blunders of this kind and "reality will catch up with out French friends".

Eurozone manufacturing downturn gathers pace: The downturn in the Eurozone manufacturing sector extended into a fifteenth successive month in October, as domestic market conditions remained subdued and intra and extra-Eurozone trade flows deteriorated further. At 45.4 in October, from 46.1 in September, the headline seasonally adjusted Markit Final Eurozone Manufacturing PMI was slightly above the earlier flash estimate of 45.3. The downturn not only deepened, but also widened during the latest survey period. Only the Irish PMI stayed above the neutral 50.0 mark, as the Dutch PMI edged back into contraction territory. Rates of contraction accelerated in Germany, Italy, Spain, Austria and Greece. Although the downturn in France eased slightly, it remained stronger than the euro area average. Manufacturing output declined for the eighth month in a row during October, and at a faster rate than in the previous month. Production fell across the consumer, intermediate and investment goods sectors, with by far the steeper rates of contraction seen in the latter two sectors.

Eurozone manufacturing downturn accelerated towards the end of October: The Eurozone manufacturing downturn accelerated towards the end of October as domestic market conditions remained subdued and intra and extra-Eurozone trade flows deteriorated further. At 45.4 in October, from 46.1 in September, the headline seasonally adjusted Markit Final Eurozone Manufacturing PMI (Purchasing Managers' Index) was slightly above the earlier flash estimate of 45.3.The downturn not only deepened, but also widened during the latest survey period. Only the Irish PMI stayed above the neutral 50.0 mark, as the Dutch PMI edged back into contraction territory. Rates of contraction accelerated in Germany, Italy, Spain, Austria and Greece. Although the downturn in France eased slightly, it remained stronger than the euro area average. Manufacturing output declined for the eighth month in a row during October, and at a faster rate than in the previous month. Production fell across the consumer, intermediate and investment goods sectors, with by far the steeper rates of contraction seen in the latter two sectors. Underlying the latest reduction in output was a further deterioration in new order inflows, as new business declined for the seventeenth successive month. Companies reported that weak domestic demand and declining international trade flows had led to reduced inflows of new business. Of the nations covered by the latest survey, only Ireland saw increases in both output and new orders. New export orders fell for the sixteenth consecutive month in October. The latest decline reflected sharp falls at intermediate and investment goods producers, as export orders for consumer products showed a marginal increase. Total new exports fell at substantial rates in France, Germany, Austria and Greece. In marked contrast, modest gains were signalled for Ireland, Italy and the Netherlands. Spain saw broadly no change.

Europe's new car market slumps toward 1993 lows (Reuters) - The western European auto market maintained its sharp descent towards levels last seen nearly 20 years ago as consumers worried about unemployment and euro zone austerity shunned car dealerships in October. Industry data published on Friday showed that France incurred its 12th straight monthly decline in new car registrations, while demand in Spain continued to plummet. Germany may have bucked the trend with an increase of half a percent, but once two extra working days in October are stripped out of the equation, its meager growth transforms into a material decline. Smoothing out calendar effects by looking at Germany's market over the past two months shows a market declining about 5.4 percent in the period. "Currently there is no early indicator or other hard data pointing to an improvement in the next few months," said Ulrich Winzen, chief forecaster in Germany for auto industry consultant R.L. Polk. He currently expects western European car sales will fall clearly below the 12 million mark both this year and next, a level generally not seen since 1986 -- with the exception of 1993 when there was a short, sharp drop to 11.3 million cars. While Germany is holding up relatively well given its largely resilient labor market and higher consumer confidence, car markets in structurally weak southern European economies continue to suffer heavily as more and more budget cuts, tax hikes and supply-side reforms are implemented. September's near 22 percent slump in Spain came after the government raised value-added tax, applicable from September 1, as part of its fiscal consolidation programme.

Global Manufacturing Contracts 5th Consecutive Month - Markit reports Global manufacturing contracts for fifth consecutive month - The downturn in the global manufacturing sector moderated in October. The JPMorgan Global Manufacturing PMI™ – a composite index produced by JPMorgan and Markit in association with ISM and IFPSM – rose for the second month running to reach 49.2, its highest reading during the current five-month period of contraction. The sector continued to report declining volumes of production and new orders, although rates of contraction were slower than in the previous month. Signs of excess capacity were present in the global manufacturing sector during October. This was highlighted by a further marked reduction in backlogs of work, which fell for the seventeenth successive month and at the joint-fastest rate during that period.

Libor: Judge forces Barclays to reveal names of staff involved in rate rigging - Barclays will be forced to disclose the names of staff involved in Libor rigging, following a damning court judgment over claims it mis-sold interest rate swaps to a care home operator. The bank was chastised on Monday at the High Court in London by Lord Justice Flaux, who claimed Barclays was intentionally trying to hide the true scale of the Libor scandal, which has already seen the lender fined £290m. The criticisms came as Barclays faced a preliminary hearing, ahead of a trial, over allegations it mis-sold to a care home group complex interest rate derivatives that were in turn based on false Libor rates. Issuing a damning judgment, Lord Justice Flaux said Barclays’ objections to the Libor-rigging claims brought against it by Guardian Care Homes were “wholly without merit” and accused the bank of “misleading” customers. Allowing the case to continue to trial, the judge described the bank’s attempts to dismiss the Libor aspects of the care home operator’s claim as “shadow boxing” and said they were “doomed to fail”. Guardian Care Homes’ lawsuit is seen as a test case for Libor-rigging claims and the court decision to allow the case to go to trial potentially opens the door to billions of pounds of legal actions against other banks involved in the rate-setting scandal.

Barclays slashes bankers’ pay by up to half as profits fall - The Sunday Telegraph understands that investment bankers who earn a base salary of between £500,000 and £3m will see their salaries cut by between 30pc and 40pc. In certain instances, salaries will be cut by as much as half. The reductions – still to be finalised by senior management within the division – will be drafted in at the start of next year following conversations with those concerned. News of the coming cuts in salaries for high earners comes ahead of Barclays’ third-quarter results on Wednesday. The bank is due to announce an adjusted profit before tax of £1.7bn, in line with consensus estimates.

UK's Q3 GDP growth was a surprise - The UK GDP growth surprised to the up-side last week. And it wasn't just the Olympics-driven rebound. JPMorgan: - A rebound in GDP in 3Q had been widely expected on the grounds of several temporary factors. But the reported 1.0%q/q increase was twice the size of expectations. Excluding bank holiday- and Olympics-related boosts in 3Q, GDP appears to have shown an underlying expansion of close to 0.4%q/q in 3Q—with a broad-based pickup in services output the main driver, and to a lesser extent a positive surprise on manufacturing. Growth will slow in 4Q as energy prices rise and temporary boosts fade. Moreover, the business surveys have failed to indicate acceleration, raising the possibility that the much weaker official data (up until 3Q) are playing catchup with the PMIs. Nevertheless, there is a sense that a recovery is taking place, with the GDP figures moving closer to the strong labor market and retail reports seen over the summer and into the autumn. Growth over 2Q/3Q has averaged 0.3%q/q versus the BoE’s August forecast of 0.15%. It seems the UK is finally coming out of the nasty double-dip recession. The Guardian: - So now we know what David Cameron meant when he said the good news would keep coming. The 1% expansion in GDP in the third quarter was the strongest since the world economy felt the first tremors of the financial crisis in 2007, and well above City expectations. Having been shockingly bad three months ago, the growth figures were surprisingly good this time – although not quite as good as they looked.

Lord Bichard: Old People Need To Work For Their Pensions - Retired people should work for their pensions, says Lord Bichard. The fact that pensioners already have worked for their pension, by definition, doesn't detain him. Pensioners are a "negative burden" on the state, who need to be "incentivised" into doing jobs that young people could do for a wage. The interesting thing about Bichard is that he isn't some rabid Tory. He is a cross-bench peer, a technocratic former senior civil servant who worked closely with the last Labour government. His suggestion was raised in the context of discussions between politicians, bureaucrats and Bank of England experts on the state's response to demographic change. And while his specific proposals may have been off-centre, they point to a consensus among policy-making elites. In general, the consensus is that British capitalism will find its way out of crisis and restore global competitiveness by squeezing more work out of the labour force. In terms of pensions, the consensus is that people will have to work longer, for less.

The UK and Austerity: some facts - There has been some recent debate about whether UK austerity is responsible for the poor performance of the UK economy (which remains poor, despite the Q3 growth numbers). The debate could be summarised thus: Austerity Critics (e.g. Paul Krugman): “The UK has gone for strong austerity, and since it did so GDP has stagnated – told you so.” Austerity Apologists (e.g. Tyler Cowen): “But if you ignore tax increases, and public investment, actually there has not been much austerity. The weakness of the UK economy reflects other factors.” So, for those who are confused, here are some facts. Austerity can involve tax increases, cuts in transfers and spending cuts, so it is natural to look at the overall deficit. As I have suggested before, the best figure for the direction and impact of policy is the cyclically adjusted primary deficit. Both IMF and OECD estimates show substantial austerity.

Monetary policy defeatism reigns at the Bank of England - Charlie Bean’s speech on Wednesday evening was grim, even by central bankers’ standards. Mr Bean is the Bank’s deputy governor with responsibility for monetary policy. But he doesn’t seem to think that particular policy strand can do much good. Either now, or in preventing the next bubble. Not only did Mr Bean echo the governor’s warnings over the effectiveness (or lack thereof) of more quantitative easing in the current climate, he is also sceptical that monetary policy can curb the build-up of credit bubbles. Mr Bean, like the governor, acknowledges that monetary policy should be used in some instances to avoid a “disruptive bust”. Even if that means making hitting the inflation target the secondary focus for a few years. But the deputy governor doesn’t seem to think it will do much good: he claims that a 200 basis point increase in the bank rate in the four years in the run-up to the crash would have done little to dampen lending. This from the speech: While the rise in real house prices over that period would have been less than half as large, the impact on overall real credit growth would have been pretty modest, reducing it by only a tenth — hardly enough to have a major bearing on the magnitude of the subsequent bust. Moreover, output would have been some 3 per cent lower.

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something of an order has evolved for these weekly posts; i usually start with the Fed, QE, monetary policy, inflation/deflation, GDP & economic outlook, the dollar, debt & deficits issues, fiscal policy and taxes; then finreg, banks, banksters & congress critters & what theyre up to, then the main street economy including CRE, foreclosures, housing, consumers, unemployment, inequality, state budgets, education, pensions, and health care issues; & near the end are global issues, including food, water, climate, energy and the environment, peak oil & resources, china and other non western countries, trade, and the european crisis...my earliest posts were just the links; now ive tried for a summary paragraph of each so you can usually just scroll thru without a lot of clicking...every sunday morning i email a less wonkish eclectic collection of selections & leftovers from this to about four dozen friends & contacts who are stuck with me...if you want a copy of this weeks, or want to be on my weekly mailing list, contact me..

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this blog's posts normally exceed capacity of RSS feeds; accordingly, to allow for notification of new posts, the settings have been adjusted to truncate the feed to the first paragraph only...

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about the globalglassonion...

the first global glass onion had its origin in late winter of 2009 on the marketwatch.com site when a number us who were commenting on the politics site there, fed up with the level of the banter there, formed a new discussion group led by "REALITYZONE"...

however, the marketwatch site proved to have its limitations, including censorship of topics and not allowing clickable external hyperlinks...so this is site is my attempt to take what i was doing there a step further, providing direct links to economics and news articles that i hope you all will find useful or interesting...

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i have no clue as to how other browsers work, but if you're using IE7 or IE8 you should be using tabbed browsing, especially to save yourself several reloads of a page like this which you'd be linking from...to enable tabbed browsing, go to tools, then "internet options" and click "change how webpages are displayed in tabs"...then check "enable tabbed browsing" (this requires a restart to take effect) & btw, i have warnings, groups, and quick tabs enabled, and have popups set to also open in a new tab, rather than a new window...

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